kanchanaburi-elephants
02
Mar

I Share With You My Book On Crypto Arbitrage

I just got back from off-reach parts of South East Asia, where elephants and humans co-exist in harmony and children ride motorbikes on highways freely without helmets. During that time, I was given plenty time to ponder about random subject matters, as well as admire the strange and colorful critters that exist out there in the wild. By design, my mind wandered back to my book of crypto arbitrage, which as of late has been rather inactive due to a boring-as-fuck market.

Naturally, this is a subject matter that has been floating around the internets for quite some time now. Crypto coins are decentralized, making them assets without borders, yet the marketplaces to buy them are centralized and governed by the laws of the local jurisdiction. This creates an imperfect market where prices vary, yet the asset itself can caper about without restriction from one country to another.

Arbitrage only works for the select few in the know. It’s fun while it lasts but stops working quickly when everyone catches on and closes the price gap. Having said that, if you have an arbitrage idea that is feasible, you’d be wise to stay silent like a church mouse because once your little secret gets out the game is over. Rather, ask yourself the more important question; ‘how long can this shit reasonably last?’

The window of arbitrage is small, and to stay profitable you must be fluid – always changing with the ebb and flow of the market. What made you rich today is certain to leave you broke and penniless tomorrow and that motto could not be more true in arbitrage.

Over in cryptoland, there are many different kinds of arbitrage. In my world, I break it up into 3 categories but the constant is that it has to go from crypto back into fiat once – which is the exact point in which the profit is realized. Whether you start or end with fiat or crypto is irrelevant – both are possible.

The most profitable book by far is arbitrage between the spreads of two difference fiat currencies. Typically, the base currency is USD and the secondary could be any other – I’ve seen it work well with KRW, INR, or in my case, THB. Buy and sell a coin simultaneously when the coin prices are different between the 2 markets. Send it back when the price difference narrows. This method carries the lowest risk and allows movement of larger capital, but the market dictates the opportunity and most of the time is spent waiting.

Note that at times you’ll be tempted to use a bank to wire money back and do a currency swap using traditional methods. I have seen people make great efforts and go out of their way to do this. This is unwise, as it adds additional costs, time, and leaves a one-way paper trail that will raise questions later. The whole point of sending money through the crypto market in the first place is to avoid banks. You wouldn’t drive your new Tesla to another city then bicycle back now, would you? Of course you wouldn’t.

The second method is to find 2 exchanges denominated in the same fiat currency and find price differences between the 2 exchanges. Ideally, you have a balance of both fiat and crypto on both exchanges and simply sell whatever you buy at the other exchange. This only works in underdeveloped markets since volume is low and outlier orders are commonplace. I am blessed in Thailand to have access to 2 Thai exchanges; one being a liquid and developed one and the other being the shittiest of shitty exchanges like you wouldn’t believe – making this entire scheme possible.

The last method is to arbitrage the spreads between different coins on the same exchange. You’ll need an account at an outside exchange – simply sell the higher spread coin and buy the lower spread. Rinse and repeat until that shit stops working. Unfortunately, this requires a lot of work as most exchanges trading at a premium will trade at that same premium across all coins. To not apply some kind of AI or automation to extract real-time price differences would put you at a major disadvantage.