Bitcoin Arbitrage
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Transcript of Bitcoin Arbitrage
Joseph Krug
Bitcoin An arbitrage opportunity!!March 23, 2014
What is bitcoin?
❖ An electronic currency!
❖ 24/7 transactions w/o bank holidays within 10 min. !
❖ No borders!
❖ Secured by cryptography!
❖ 1/10 US cent transaction fees on average
The Price Spread
❖ As of the time of this writing, the price spread is $8 per bitcoin!
❖ When process conceived spread was $15, so it appears some people are taking advantage of this op.
Problems with arbitrage
❖ In the past you could arb the China price vs USD price of bitcoin. !
❖ China ~$685, US ~$575. Insane right?!
❖ Except it required you to sell in china, wire to US, then buy again. !
❖ Takes 7-10 days. Price increases while wire to US...
❖ Alright, so I managed to find a 3% arbitrage opportunity between two random exchanges!
❖ Will get killed with the wire transfer fees of 1-2% per exchange!
❖ Trading fees of .5%!!
❖ Your profit is wiped out.
A Great Arbitrage Op❖ We want a few things:!
❖ Minimize holding of fiat during the middle of an arbitrage round (waiting to buy btc)!
❖ Minimize volatility from bitcoin price gyration!
❖ Minimize transaction costs!
❖ Minimize time spent, less time = more rounds = more profit!
The Process
❖ There really is only one worthwhile bitcoin arbitrage strategy out of the dozens of pairings I've analyzed that doesn't fall apart. !
1. Get (somehow) some bitcoin startup capital. !
2. Sell it on bitstamp (Euro bitcoin exchange)!
3. Withdraw the money via SEPA to your EU bank account. (1 - 2 days) - many times SEPA transfers are even same day. !
4. SEPA transfer the money to btc-e (a Ukranian btc exchange) - will discuss risks on another slide. (1-2 days)!
5. Buy bitcoin $7 cheaper. !
6. Send the btc to bitstamp !
7. Goto step 2. !
❖ Time Per Round: 4 days and 15 minutes. !
❖ Fees: 10 Euro + .2% trading fees x 2 + 1% deposit fee btc-e
The Process (with more & riskier profit)❖ Discuss the use of Okpay! !
❖ Unless spread >1.5% SEPA fees & tx costs to trade will wipe out profit!
❖ Low spreads, alternative method.!
❖ 1. Transfer money using SEPA to Okpay (EU paypal)!
❖ 2. Transfer via Okpay to btc-e (0% fees) (vs normal 1% fee to do this)!
❖ 3. Buy btc on btc-e (.2% fee)!
❖ 4. Transfer btc to bitstamp!
❖ 5. Sell on bitstamp (.2% trading fee)!
❖ 6. Goto step 1!
❖ Total cost: .2% x 2 trading fees + 10 Euro SEPA!
❖ Time per round: about 6 days (3 SEPA transfers)
Why's SEPA so Great?
❖ Flat €5 transaction costs no matter the tx size!
❖ Super quick vs 7-10 day traditional wire transfer!
❖ And btc-e only accepts transfers from European bank accounts. (US MSB regulations unfavorable)
Btc-e Risks❖ Been around about 3 years (long in the bitcoin world)!
❖ Based in Ukraine !
❖ Only issue is if Russia annexed Ukraine completely!
❖ Russia hostile —-> bitcoin!
❖ In this case get out!
❖ Only in btc-e for a few minutes to buy and withdraw though so risk is very slim
Okpay Risks❖ Largest payment processor for bitcoin currently!
❖ Seems somewhat risky, lots of complaints online about requiring more documentation before they accept transfers!
❖ Seem to be very afraid of breaking any ML laws so they require lots and lots of paperwork!
❖ People have transmitted large sums fine though after getting prior approval by submitting sufficient ID
Bitstamp Risks
❖ Practically nil.!
❖ Largest bitcoin exchange!
❖ Operates out of UK!
❖ Audited by 3rd parties, proof they have their bitcoin!
❖ Using the largest btc tx in history
Bitcoin risks❖ Will only be in bitcoin for 10 minutes or so!
❖ The time required to buy btc on btc-e, withdraw to bitstamp, then sell on bitstamp!
❖ Low risk here unless bitcoin price jumps drastically in ten minutes!
❖ Even on huge news bitcoin price generally changes a lot over hours/days, doesn’t tend to jump all at once like a biotech after news!
❖ This is the biggest risk though, if news were to come out the price jump would likely wipe out the arbitrage gain, and cause 1-2% in further losses. !
❖ Or could amplify the arbitrage gain by 1-2% in the opposite direction depending on the price change.
Barriers
❖ Getting EU Bank accounts!
❖ Nigh impossible due to new US regulations!
❖ Swiss even turning away their own citizens if they hold dual citizenship with US.
An Example RoundPoint Money Step Fees Time
Start point (bank
account)
$25000 Transfer via SEPA to Okpay 5 Euros 2 days
Okpay $24993 Transfer to btc-e 0% Same day
Btc-e $24993 Buy bitcoin for $452
.2% trading fee Instant
Btc-e 55.184 bitcoin
Withdraw to bitstamp
1/10 of a penny 10 minutes
Bitstamp55.184 bitcoin - 1/10 of a penny!
Sell bitcoin for $460
.2% trading fee Instant
End $25334 1.336% profit
Conclusions/Our Goals❖ Minimize holding of fiat during the middle of an arbitrage round (waiting
to buy btc due to wire)!
❖ ✓ We only transfer dollars/euros at end of arg rounds!
❖ Minimize volatility from bitcoin price gyration!
❖ ✓ Only in bitcoin for approximately 10 minutes!
❖ Minimize transaction costs!
❖ ✓ Btc-e / bitstamp pairing + SEPA is lowest tx cost arb. op. with bitcoin!
❖ Minimize time spent, less time = more rounds = more profit! !
❖ ✓ 4 days and 6 days for a round are shortest arb. ops. possible with bitcoin