Bitcoin arbitrage: a chance to get rich or a long road in the desert?

Bitcoin arbitrage: a chance to get rich or a long road in the desert?

Many beginning traders are so inspired, that they try to use all the tricks that can give at least one chance out of a million to make a fortune from scratch, and bitcoin arbitrage is one of them. Studying the information on this issue, one should not pay too much attention to traditional exchange textbooks. Since we have been dealing with crypto exchanges and cryptocurrencies, other laws and regulations work in this area.

Table of content:

  • The idea of arbitrage and earning on it
  • How are crypto and arbitrage connected?
  • Concept, types and algorithm
  • Challenges and difficulties
  • Helpful tips for traders
  • Conclusion: is the game worth candles?

What is arbitrage?

The word “arbitrage” is of French origin. Its first meaning is the resolution of disputes with the participation of an intermediary. Of course, the exchange practice does not deal with disputes and conflicts, but uses a different interpretation, that relates to the arbitration deal. This is essentially an economic term, and it means a transaction which purpose is to make profit on the difference in rate. The deal must be made at the same time. Markets can be different, and then they talk about spatial arbitration.

How arbitrage is related to cryptocurrency

Crypto-currency exchanges have long and successfully worked in the financial market, and they are the driving force of the digital economy. Business beginners and “sharks” actively use bitcoin arbitrage in order to earn. Such a chance appears for two reasons. The first is the volatility of bitcoin. The second is due to the difference in rates on the exchanges, which often reaches several percent. How does this scheme work? Let's consider the issue in detail.

The arbitration concept and its types

There are a large number of crypto-exchanges. Among them we can notice both world-famous leaders and smaller unknown services. The first provide a significant volume of trading and, it can be said, set the tone for the entire market. Resources with a smaller volume follow large analogs with some delay. The task of the exchange player is to catch the moment for arbitrage sale. The most successful businessmen earn a great profit on this.

If we consider the scheme of the arbitrage transaction on a living example, we should imagine two exchanges that give the opportunity to deal with the currency pair BTC / USD. The first exchange rate is 16,000 USD per 1 BTC. The second set a rate of 17,000 to 1. An exchange player registers on both resources, acquires bitcoin on the first exchange for a smaller price and quickly sells it on the second. The difference falls into the successful businessman’s pocket, if one could say so.

So, proceeding from all above mentioned, it is possible to speak about two kinds of arbitration tenders. The first, which has already been mentioned, is traditional. In fact, a trader earns on speculation, i.e. buys for less and sells for more. Another kind of arbitration is statistical. It requires skills and, perhaps, a broker's help. The player must catch the moment when the price has risen on one of the sites, and the others, in view of the information delay, have not yet raised its quotes. Simply put, you need to correctly find the entry point and take advantage of the price gap.

The algorithm of bitcoin arbitrage consists of the following:

  • Registration of a wallet in an electronic payment system
  • Search for exchanges with the optimal price difference for the transaction
  • Transfer of the cryptocurrency and / or fiat money to the exchange, purchase BTC
  • Transfer of purchased funds to another service with a higher rate
  • Sale of cryptocurrency, withdrawal of funds on a wallet or through an exchange

Challenges and difficulties

If everything was so easy, everyone would already today become a millionaire. On the way to a large fortune, there are many obstacles. Here are some of them:

Blockchain lock

BTC transactions take time, so there is some delay between exchanges. There is nothing strange here, since the whole blockchain system works this way. 10 minutes is the standard waiting time. At exchanges, 6 such confirmations are required. It is easy to calculate that this will take exactly one hour. Only after this period you can use the transferred funds again, and during this time there can be a sharp fluctuation of the rate and the profit will be "eaten". One more important nuance: the smaller the bitcoin amount is waiting for operations, the longer it will take to wait.

Transaction fees

Commission fees are set for both the exchange transaction and the withdrawal. Add to this list a fee for the purchase of a cryptocurrency, the fee for the input of fiat funds. Like it or not, but you have to pay the service for each step, "eat" a decent amount. Imagine that the fee for the input of the funds is 3%. 16, 000 USD will not be put onto your account in total, but in a smaller amount without 3%. Accordingly, it will not be possible to acquire a whole bitcoin for it, but its parts. In addition, for the purchase you will have to give 0.2% as well.

Helpful Tips

Weigh the pros and cons, count the fees and, depending on it, predict the potential profit - all this must be done before the beginning of the financial experiment with bitcoin arbitrage. The next steps should be:

Select exchanges

About how to choose an exchange for the purchase or sale of cryptocurrency, we have talked many times. As for arbitrage transactions, the choice of exchanges concerns the most profitable difference in the exchange rate. It should be on its maximum.


Your exchange accounts must have both fiat and virtual funds, so that you can make a purchase at a favorable rate at any time without waiting for the money to be put. In this case, every minute is precious.

Arbitrage bots

Special soft exists to automate the search for the most beneficial options for the course. This software is paid, and the individual development of an application will cost even more. As for efficiency, the system is still in testing mode.

Conclusion: is it worth to deal with arbitrage?

Arbitrage is possible if you have some cryptocurrency or free fiat money. Getting involved in this process, remember that strict rules and calculations work here. Before making an operation, predict in advance your hypothetical profit, take into account rate difference, fees, waiting time and other factors. Large players less and less participate in bitcoin arbitrage when for individual traders there are still chances to make money on it. There is a tendency for the balancing of courses, and the number of those, who wants to earn on the scheme, is increasing. It is better for beginners to use the help of a bot when, as more experienced players rely on their practical skills, they have enough patience and experience.