How Bitcoin and Ethereum Arbitrage Trading Works

Fintech Asia editorial psd2

As cryptocurrency market’s trading volume grows, the market is attracting more investors and traders. Since it is a new market, there are still lots of arbitrage opportunities due to the inefficiency.

What is arbitrage? Simply put, it’s buying low in one place and selling high in another at the same moment in time. You can find those opportunities when you can see big gaps in trading volumes between different markets or exchanges.


Bitcoin and Ethereum have been attracting a lot of arbitrage attention

There are also some scams and hackers that need to be carefully avoided when dealing in the cryptocurrency markets, but as the asset class matures and becomes more mainstream, these risks will be ironed out.

Bitcoin and Ethereum are two of the most popular cryptocurrencies and offer huge amounts of liquidity. In fact, the currencies became liquid enough to deploy decent sizes of assets for professional traders. Bitcoin’s market cap is US$68 billion and Ethereum’s is US$30 billion as of today.


[4 Most Popular Cryptocurrencies by Market Cap :]


For anyone looking at arbitrage, these two cryptocurrencies could offer a potentially lucrative return on investment.

As the nature of cryptocurrencies is the code itself, we could think of more very interesting ideas of doing it (i.e. adding cryptocurrency mining into the trading strategy). But let’s look at more of traditional ways of doing it in other asset classes.

There are two popular arbitrage methods: 1) Arbitrage among exchanges in different places, and 2) Arbitrage among prices of different cryptocurrencies (we will look at Bitcoin and Ethereum).


Arbitrage among exchanges

It is not very difficult to find these opportunities if you look at exchanges in different locations. If you can build a system to re-route funds among exchanges fast enough and deal with the transaction costs, this strategy can be EXTREMELY profitable.

I.e. Bitcoin was at US$2,076 as of May 12 and it was 12.7% higher than the average global market price.


Arbitrage between Bitcoin and Ethereum

It is hard to prove the actual value of Bitcoin and Ethereum, but it’s clear that the two currencies are moving together if you look at the historical movement. There are many open source bots to show how arbitrage between this cryptocurrency pair can work.

If you track ETH/BTC ratio and buy/sell to maintain flat rate, you will find it is (still) pretty profitable.


Am I doing it? Working on it?

Are you building strategies and investment products to take advantage of cryptocurrency mining, arbitrage trading or ICOs?

Contact us if you are interested to know more about it. =)

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