Photographer: Chris Ratcliffe/Bloomberg
Photographer: Chris Ratcliffe/Bloomberg

What is bitcoin arbitrage, and why do you need to know?

By Opinion Time of article published Jun 21, 2021

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CRYPTOCURRENCY is here to stay and the service offerings around investing in it are evolving as the market develops.

Bitcoin arbitrage services, for example, are fast becoming established in South Africa. But what are they, and why should investors and consumers care?

What is bitcoin arbitrage?

Arbitrage involves taking advantage of price differences in bitcoin between different markets - for example, European and South African markets and so on.

How big a price difference are we talking about here?

While the price difference varies, on average there is a 3-4 percent price difference between the European price of bitcoin in euros and the South African price of bitcoin in rand. This gives investors an opportunity to buy at the lower European market price and sell in South Africa at the higher local market price, making an immediate profit.

How much do I need to know about the market to take advantage of this?

In the old days of cryptocurrency, back in 2017, investors would do this largely manually. Today, different trading platforms have bitcoin arbitrage systems that investors can use. The idea is to use an automated fully-hedged system that executes the trades in real time.

This means that investors are not exposed to foreign exchange price risk or cryptocurrency price risk (i.e. the risk that the price changes to the investor’s detriment) as the trades are executed instantly.

Investors looking to use arbitrage products need to decide how much of their R100 000 single discretionary allowance (SDA) or R1m foreign investment allowance (FIA) they want to invest (the latter requires a tax clearance), register for a service, and supply the relevant documents. They should ensure that they are dealing with a reputable platform that deals with licensed foreign exchange brokers which can assist with opening a foreign currency account (FCA) with an authorised dealer bank, and can assist with SA Revenue Service clearance.

They should also look into the platform’s track record, security and backing.

Cryptocurrency investment has moved very quickly into the mainstream. While some have seen significant returns just from buying bitcoin and selling at the right time, arbitrage provides a way to profit instantly, regardless of the price of bitcoin at any given point in time.

This offers investors, even relatively inexperienced ones, a low-risk opportunity to profit from cryptocurrency.

Chris Harmse, Global Head of Trading, Coindirect

* The views expressed here are not necessarily those of IOL or of title sites


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