Stupid Question

[vaughneuro]

I feel like this is gonna be one of my stupid moments but, what would happen if i bout btc for less at a cheaper exchange then send them to my Mt. Gox account and sold them for the higher price there? there has to be some reason that doesnt work right?

[monbux]

I have thought of that too, but you would be wasting a hell lot of time and money to transfer them around for a bit of cash.

[evilscoop]

Its called arbitrage, and due to time processing fiat withdraw's and fee's etc its seldom worth it.

[Nik1ab]

That's how trading works. You can make high profits out of this, but you have to really spend some time on this.

[OnkelPaul]

Then you'd have some dollars sitting on your mt.gox account and won't be able to get at them due to the US$ withdrawing delays.
If you can live with the delays and if your only alternative is to keep the dollars in a savings account with 3-4% annual interest, the mt.gox maneuver might be an option.

Onkel Paul

[Van3cespencer7]

If you can withdraw from mtgox then go make your millions!

Sounds good in theory, try making it reality.

[zulufields]

I think this type of trading is very risky ( it needs a number of things working together at the same time), I would not put huge sums of money into it but might be good for a bit of fun.

[monbux]

I think this type of trading is very risky ( it needs a number of things working together at the same time), I would not put huge sums of money into it but might be good for a bit of fun.

right.  Plus the time it takes..  It's not exactly a real money maker

[J603]

I feel like this is gonna be one of my stupid moments but, what would happen if i bout btc for less at a cheaper exchange then send them to my Mt. Gox account and sold them for the higher price there? there has to be some reason that doesnt work right?

The transfer fees make this impossible, unless you have a cheap source with low fees. Mt. Gox may say "$105", but realistically you're going to have to pay $10 or more in fees just to get it there.

[bkava]

This will work with large enough transactions if the exchange you sell bitcoins on doesn't run away with your cash.  If you only do small transactions as the previous user mentioned you may lose the profits in fees.

In many cases of arbitrage with bitcoins the more important issue is counterparty risk. (counterparty = exchange goes bankrupt / disappears)
Often if there is an obvious arbitrage opportunity it is there because of counterparty risk.

Take for example the current MtGox/Bitstamp situation.

Right now delays on currency withdrawals from MtGox are between 6 and 12 weeks and many suspect withdrawals are coming from fee income and new deposits because they have used customer cash deposits for their own business.

In short liquidity problems... which means they don't have enough cash, and if there is a shock to the bitcoin economy they could go bankrupt.

That is why the price on MtGox is so much higher. It has restricted supply since customers are not selling unless they can get paid for the risk that they can't get their cash out. Meanwhile the demand comes predominately from customers that are buying to transfer out bitcoins to an exchange with no liquidity problems, e.g. BitStamp. Given BitStamp's growing reputation it's hard to see why anyone would buy bitcoins on MtGox if not in order to subsequently transfer them out.

Current time estimate for withdrawals on MtGox is 12 weeks. You can make 7% on arbitrage at the moment. 7% for 12 weeks --> 30% yearly income. This is a good return on investment but given that MtGox has no transparency it is impossible to tell if they are just about to go bankrupt or whether they are safe but just immorally using customer funds to develop their business quickly and are having temporary liquidity problems.

If you believe the market it seems there is only a 10% chance that MtGox will fail in the next 4 months. Another type of arbitrage would be if you knew if this was either too low or or too high. If you know the likelyhood is lower you should be selling bitcoins on MtGox.  If it is higher you should either be buying bitcoins to exit MtGox or creating private shorting arrangements where you can borrow the currency balance in a MtGox user's account and replace it later at the end of the short contract.

Example short contract  time #0 to time #1
1) I borrow $10000 in currency from MtGox user A at time #0
2) I buy bitcoins at 10% premium on MtGox, transfer to BitStamp
3) At end of short contract (time #1)
   a) if MtGox still alive I transfer enough bitcoins to User A at MtGox to sell for $10000
   b) if MtGox goes bankrupt I do nothing.

I might pay 10% fee ($1000) to user A to do this. There has to be something in it for A to let me do this. If MtGox goes under I make $9000 and if risk of failing rises then price on MtGox might be 1.5x price on Bitstamp (Then I make $3000).

Anyway good luck if you do choose to go ahead and arbitrage.

-B

[J603]

This will work with large enough transactions if the exchange you sell bitcoins on doesn't run away with your cash.  If you only do small transactions as the previous user mentioned you may lose the profits in fees.

I don't see how larger transactions makes a difference. fees are in %, not concrete values. If I buy 1 BTC from Bitstamp at 98.00 and then sell it for 105.00 at Mt. Gox, I still lose money because I have to pay 10%, which is more than the 7 dollars I would make.

Even if I buy 100 BTC at 9800 and then sell it for 10,500 I still am going to lose 10%, which is more than the 700 I would make.

There would need to be a huge gap in prices for profit to be made. However, it doesn't matter because you can't get your money off of MTGox anyways.

[bkava]

assume we buy 100BTC as you say.


Cost on BitStamp = 9800.
Deposit cost to Bitstamp
  = Minimum(0.1%*$9800=$9.8,  $15)  = $15
Bitcoin Buy fee at Bitstamp: 0.5% = $49
Bitcoin transfer fee to MtGox =~ $0
Bitcoin Sell fee at MtGox: 0.55% = $56
Withdrawal cost at Mtgox: 2000yen= $20.
Total costs: $15 + $49 + $0 + $56 + $20 = $35 (fixed) + $105(trx size dependent) = $140
$140 / $9800 =~ 1.4%

7% - 1.4% = 5.6% profit.

Where do you get 10% transaction fees from?



For numbers
https://en.bitcoin.it/wiki/Bitstamp
https://www.bitstamp.net/faq/
https://support.mtgox.com/entries/21649594-Withdrawals-and-Deposits

[J603]

assume we buy 100BTC as you say.


Cost on BitStamp = 9800.
Deposit cost to Bitstamp
  = Minimum(0.1%*$9800=$9.8,  $15)  = $15
Bitcoin Buy fee at Bitstamp: 0.5% = $49
Bitcoin transfer fee to MtGox =~ $0
Bitcoin Sell fee at MtGox: 0.55% = $56
Withdrawal cost at Mtgox: 2000yen= $20.
Total costs: $15 + $49 + $0 + $56 + $20 = $35 (fixed) + $105(trx size dependent) = $140
$140 / $9800 =~ 1.4%

7% - 1.4% = 5.6% profit.

Where do you get 10% transaction fees from?



For numbers
https://en.bitcoin.it/wiki/Bitstamp
https://www.bitstamp.net/faq/
https://support.mtgox.com/entries/21649594-Withdrawals-and-Deposits

My bad. I'm not sure why I thought it was so high. Although you should include the wire transfer fees in any calculation.

http://www.mybanktracker.com/news/2012/02/13/wire-transfer-fees-banks/

[bkava]

Sure. My bank charges me $25 for outbound wire and $0 for inbound but different levels of accounts have different charges so this will vary from account to account.

Thus in my case transaction fees would be $165 instead of $140, i.e. 1.6%

Also above where i say 7% for 12 weeks it would be more correct to say 5-6% taking into account fees
--> 21-25% per year.
This is still a very good return if you believe MtGox will make it through their liquidity/cashflow problem. But people new to bitcoin business should be careful. Anyone who thinks MtGox just have a labour shortage, amount of work i.e. "backlog", or financial system lag based problem is living in a fantasy world.

--B

[Alpaca Bob]

Gox is still paying Japanese account holders just fine, right? And I assume BitStamp accepts Japanese customers... so if you are Japanese this should work fine.

[bkava]

That is a very interesting point.

If MtGox is paying japanese withdrawals via domestic wire promptly it would support their claim that the problem with international wire withdrawals is a banking/technical rather they than a liquidity problem.

Does anyone know if MtGox is paying Japanese domestic withdrawals without delay?

If they are then this would be a profitable arbitrage.

I'm doubtful but I would love to hear from any Japanese account holders who have first hand experience with domestic withdrawals in the last 3 months.

[Alpaca Bob]

That is a very interesting point.

If MtGox is paying japanese withdrawals via domestic wire promptly it would support their claim that the problem with international wire withdrawals is a banking/technical rather they than a liquidity problem.

Does anyone know if MtGox is paying Japanese domestic withdrawals without delay?

If they are then this would be a profitable arbitrage.

I'm doubtful but I would love to hear from any Japanese account holders who have first hand experience with domestic withdrawals in the last 3 months.

Not a Japanese account holder, but here is my source:

https://bitcointalk.org/index.php?topic=179586.420

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