Bitcoin arbitrage, pros and cons, experience and profitability

[crazyivan]

Hey guys,

I have been involved in Bitcoin arbitrage for several months now and it has been quite profitable. For those of you unaware how this works, arbitrage is the process of taking advantage of BTC price difference between BTC exchanges. In other words, purchasing Bitcoins on the exchange with the lower price, and re-selling those same coins on another exchange and profiting through the difference.

I did some arbitrage on my own  last year when there was a huge spread between Mtgox and Bitstamp Bitcoin prices, in some cases between 5-10%. The main problem was how to move BTC and/or fiat between different exchanges and the fact that in order to reduce the arbitrage risk to a minimum one needs to be able to buy BTC on an exchange with low price while selling the same amount of BTC on another exchange with high price AT THE SAME TIME. Recently, the spread between exchanges is not so wide anymore but there are a lot more exchanges, so there is still a lot of money to be made on this.

Have you ever performed arbitrage on your own, were you successful, what was your biggest problem, please share your experience.

[BittBurger]

My arbitrage:

1)  Buy large quantity and hold in paper wallet.
2)  Buy smaller amount and hold in hot wallet.
3)  Spend smaller amount.
4)  Replenish smaller amount.

Repeat.

Guaranteed earnings.  Promise.

-B-

[crazyivan]

My arbitrage:

1)  Buy large quantity and hold in paper wallet.
2)  Buy smaller amount and hold in hot wallet.
3)  Spend smaller amount.
4)  Replenish smaller amount.

Repeat.

Guaranteed earnings.  Promise.

-B-

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

[IrishFutbol]

My arbitrage:

1)  Buy large quantity and hold in paper wallet.
2)  Buy smaller amount and hold in hot wallet.
3)  Spend smaller amount.
4)  Replenish smaller amount.

Repeat.

Guaranteed earnings.  Promise.

-B-

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

There were plenty of people trying to doing this when Mt. Gox fell below the rest of the exchanges.

[Keyser Soze]

Bitcoin markets are inefficient and trading fees, withdrawal costs or slippage can easily eat up profits from a 2% spread. In your MtGox example, they were extremely inefficient, hence the large spread.  If there is arbitrage profit to be made, people will be doing it.

I do, however, feel that this thread was created to advertise the HYIP (scam) referral links in your signature.

[CurbsideProphet]

My arbitrage:

1)  Buy large quantity and hold in paper wallet.
2)  Buy smaller amount and hold in hot wallet.
3)  Spend smaller amount.
4)  Replenish smaller amount.

Repeat.

Guaranteed earnings.  Promise.

-B-

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Hope you don't mind me asking, but are you in the US?  The only reason I ask is because I know a while back a bunch of people had their accounts frozen when they were conducting high volume Bitcoin transactions.  Just something to be aware of. 

[crazyivan]

Bitcoin markets are inefficient and trading fees, withdrawal costs or slippage can easily eat up profits from a 2% spread. In your MtGox example, they were extremely inefficient, hence the large spread.  If there is arbitrage profit to be made, people will be doing it.

I do, however, feel that this thread was created to advertise the HYIP (scam) referral links in your signature.

So many incorrect info in and trolling in a single post. I am not sure whether I should waste my time answering, but let me say a few words. First, I have been doing arbitrage for a long time, I ll only mention I did it when Bitinstant was around. Second, it was profitable and it still is, I still do it and bunch of other people do it and their opinion is what I would like to hear. Instead of posting any meaningful opinion, you offer me 101 Introductory to economics, troll this thread and end up saying nothing about the actual topic. Do you have any experience in arbitrage? No, I do not think so. Do you intend to do arbitrage? No, I do not think so. So what, oh what is the point spending your time on this post?

Still, I thank you on your lecture in economics. I went through market inefficiencies 15 years ago but it is always nice to have another lecture.

[BittBurger]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Well, among all my friends, yes.   Every one of them ultimately lost all their BTC trying to play the system.  Or got it stolen out of their online accounts.  Seriously.   All of them.  
I would be interested in what kind of money you are making.  I know there are some guys making money in this forum doing arbitrage.  But part me assumes its not very much, and not worth the risk.
If for example you've brought yourself from 10 BTC to 20 BTC, I would be interested in hearing about it.  It takes guts honestly.  

PS:  Go to the Economics forum, then Speculation subforum and you'll meet 500 dudes who are doing this.
PPS:  Starting a thread on arbitrage and having those signature URL's might be considered strange.

-B-

[crazyivan]

My arbitrage:

1)  Buy large quantity and hold in paper wallet.
2)  Buy smaller amount and hold in hot wallet.
3)  Spend smaller amount.
4)  Replenish smaller amount.

Repeat.

Guaranteed earnings.  Promise.

-B-

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Hope you don't mind me asking, but are you in the US?  The only reason I ask is because I know a while back a bunch of people had their accounts frozen when they were conducting high volume Bitcoin transactions.  Just something to be aware of. 

Thx for this warning but no problem about this, I am in Europe and my transactions are not high. Just enough to be more profitable then mining.

[Nathonas]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Well, among all my friends, yes.   Every one of them ultimately lost all their BTC trying to play the system.  Or got it stolen out of their online accounts.  Seriously.   All of them.  
I would be interested in what kind of money you are making.  I know there are some guys making money in this forum doing arbitrage.  But part me assumes its not very much, and not worth the risk.
If for example you've brought yourself from 10 BTC to 20 BTC, I would be interested in hearing about it.  It takes guts honestly.  

PS:  Go to the Economics forum, then Speculation subforum and you'll meet 500 dudes who are doing this.
PPS:  Starting a thread on arbitrage and having those signature URL's might be considered strange.

-B-

I'm inclined to agree with this. I'm sure you DO make a small amount of profit with every trade by doing this, but there are risks, and of course you are spending a good amount of time doing this (and waiting for confirmations every time you move BTC). I remember this topic actually coming up quite a lot on reddit's bitcoin sections when I used to frequent them, and most of the time people's general sentiment would be that it's not worth it and I tend to agree. If you are making money with it good for you but I doubt there's a lot of people doing it, and I doubt even more that they would share their successes.

[crazyivan]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Well, among all my friends, yes.   Every one of them ultimately lost all their BTC trying to play the system.  Or got it stolen out of their online accounts.  Seriously.   All of them.  
I would be interested in what kind of money you are making.  I know there are some guys making money in this forum doing arbitrage.  But part me assumes its not very much, and not worth the risk.
If for example you've brought yourself from 10 BTC to 20 BTC, I would be interested in hearing about it.  It takes guts honestly.  

PS:  Go to the Economics forum, then Speculation subforum and you'll meet 500 dudes who are doing this.
PPS:  Starting a thread on arbitrage and having those signature URL's might be considered strange.

-B-

Hehe, what s so strange about my links, I am into this, sure I have links about it. I am not trying to hide those in any way or sell anything, they are clearly labeled as affiliate links and they are in my signature. I also have a few e-books, bunch of arbitrage related websites, lots of graphs and charts. Regarding links, don`t click my links, they are not related to this post. Is it better now?  

[crazyivan]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

Well, among all my friends, yes.   Every one of them ultimately lost all their BTC trying to play the system.  Or got it stolen out of their online accounts.  Seriously.   All of them.  
I would be interested in what kind of money you are making.  I know there are some guys making money in this forum doing arbitrage.  But part me assumes its not very much, and not worth the risk.
If for example you've brought yourself from 10 BTC to 20 BTC, I would be interested in hearing about it.  It takes guts honestly.  

PS:  Go to the Economics forum, then Speculation subforum and you'll meet 500 dudes who are doing this.
PPS:  Starting a thread on arbitrage and having those signature URL's might be considered strange.

-B-

I'm inclined to agree with this. I'm sure you DO make a small amount of profit with every trade by doing this, but there are risks, and of course you are spending a good amount of time doing this (and waiting for confirmations every time you move BTC). I remember this topic actually coming up quite a lot on reddit's bitcoin sections when I used to frequent them, and most of the time people's general sentiment would be that it's not worth it and I tend to agree. If you are making money with it good for you but I doubt there's a lot of people doing it, and I doubt even more that they would share their successes.

Thank you for your post, yes, this is something I agree with. The entire arbitrage is risky but what related to BTC ecosystem is not? Mining speculative coins and waiting for the price to go up? How many of those people have in their wallets never to use again? Investing into cloud hashing which absolutely never reaches ROI? Tons of people do that. Investing tons of cash into Butterfly labs and similar ASIC machines which get delivered a year after their deadline and are next to useless. Lots of people did that. Mtgox? Do not even want to go there.
My point is that all these are EXTREMELY risky ventures and still people do it, a few make money, the rest lose money. Personally, I have managed to make a nice ROI so far. This is not something you can live on, you are correct but the main problem is that people focus only on Bitstamp and BTCe and prices there. The most money I made taking advantage of BTC prices on smaller exchanges.

[BittBurger]

So are you basically making $3.00 here and $1.50 there, after fees?
Because to me the pain involved in coordinating all that just for $3.00 wouldn't be worth it.
And lets say you're playing with 10x that much.  Not sure even $30 a day would be worth all the effort and stress.
Then again day traders stress and sweat and fret and toil over a few dollars a day, en masse.  
I can't deal with it unless I am making big bucks...

[crazyivan]

So are you basically making $3.00 here and $1.50 there, after fees?
Because to me the pain involved in coordinating all that just for $3.00 wouldn't be worth it.
And lets say you're playing with 10x that much.  Not sure even $30 a day would be worth all the effort and stress.
Then again day traders stress and sweat and fret and toil over a few dollars a day, en masse.  
I can't deal with it unless I am making big bucks...

Well, good for you, if those numbers you have mentioned are not satisfactory for you, all I can say is, congrats, good for you.
In my case, $100 per day is not something I am going to pass. Unfortunately, I do not get that much per day because there are always gaps when I am waiting for my BTC/fiat to change exchanges.

[josiah__Coinsetter]

'y' = the roughly equivalent amount of LTC to x amount of BTC (in value)

Start with 'x' amount of BTC on a typically lower-rate BTC/LTC exchange

Start with 'y' amount of LTC on a typically higher-rate BTC/LTC exchange

When a spread in price is detected between the exchanges, simultaneously buy 'z' amount of LTC at the lower-rate exchange and sell 'z' amount of LTC at higher-rate exchange, effectively refreshing your LTC balance at a cheaper rate, every time.

Taking it a step further would be to scan the order book to see how much you could buy/sell exactly, to lower the risk of mistakenly overextending what the market inefficiency can handle. This is recommended to be done by a bot or some sort of automated system however, seeing as it requires a lot of calculations in a very short amount of time.

When you've exhausted your funds, reallocate profits and repeat.

This effectively mitigates exposure to the risk of not being fast enough to catch the inefficiency while it exists, that most arbitragers experience in the crypto space (and it's worked pretty well for me  )

[Keyser Soze]

So many incorrect info in and trolling in a single post. I am not sure whether I should waste my time answering, but let me say a few words. First, I have been doing arbitrage for a long time, I ll only mention I did it when Bitinstant was around. Second, it was profitable and it still is, I still do it and bunch of other people do it and their opinion is what I would like to hear. Instead of posting any meaningful opinion, you offer me 101 Introductory to economics, troll this thread and end up saying nothing about the actual topic. Do you have any experience in arbitrage? No, I do not think so. Do you intend to do arbitrage? No, I do not think so. So what, oh what is the point spending your time on this post?

Still, I thank you on your lecture in economics. I went through market inefficiencies 15 years ago but it is always nice to have another lecture.

Let's take a closer look at what I really said:

Bitcoin markets are inefficient and trading fees, withdrawal costs or slippage can easily eat up profits from a 2% spread.

Compared to more traditional markets, trading fees are higher, there is less liquidity and withdrawal times (in fiat) are longer and more expensive (generally). Half a percent (for example) on each side plus withdrawal fees easily eat into your profit.

In your MtGox example, they were extremely inefficient, hence the large spread.

Before suspending bitcoin withdrawals, their price was 10+% higher then other markets because people were unable to get their fiat out in a reasonable time frame. If anyone was able to get their fiat out, they would be able to make tremendous profits. Some may have had this opportunity, but most did not.

If there is arbitrage profit to be made, people will be doing it.

Yes, people do arbitrage successfully. No reason for it not to happen if the opportunity is there. There may at times be small profit to be made at the popular exchanges, which could be easily taken advantage of by a bot. Localbitcoin can be much more lucrative if you are willing to put in the extra work, large spreads are fairly common there.

I do, however, feel that this thread was created to advertise the HYIP (scam) referral links in your signature.

It seems somewhat suspicious, given the topic, that you have two referral links to "arbitrage" companies in your signature. These both appear to be pretty obvious HYIP/Ponzi type scams.

[crazyivan]

Thank you for your comments, these are much more productive then previous ones. Regarding your comments about my links, I do not agree with you, some of these sites have been around and paying for almost 6 months and more, there are bunch of online reviews of these and NOT a single negative experience yet. At least I have not been able to find it. Having this in mind, I do agree that any Bitcoin-related service is potentially risky and people need to understand the process and risks related to Bitcoin arbitrage as well as with all these other BTC related services which I have posted before. I used Mtgox a year ago and never thought they might go under, so be CAREFUL.

[franky1]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

2% spread on exchanges does not include withdrawal fee's etc. so as long as you have large enough order sizes that can compensate the fee's and have an amount of dollar/alt/bitcoin on both exchanges for instant use. then the arbitrage is just the slower movement of funds to replenish the reserves you have just used in the trades.

sometimes its not worth it for a 1-2% as the time to replenish the reserves can make you miss out on bigger price changes.
(getting dollar from exchange A to exchange B is not a 10 minute task)

best method.. say you have $10k investment split it up into 4 reserves of $2.5k

exchange A
$2.5k deposited into here and left as dollar
$2.5k deposited and turned into bitcoin

exchange B
$2.5k deposited into here and left as dollar
if lower in price $2.5k deposited and turned into bitcoin
if higher in price use Exchange A to buy the bitcoin with the deposited reserve and transfer bitcoins to exchange B
and deposit the spare 4th $2.5k into exchange A to replenish that dollar reserve

now the rest is a juggling game

i mess around with arbitraging bitcoins with altcoins(fast exchange withdrawal/deposits). so feel free to replace the '$2.5k' with an altcoin amout of your choosing that matches bitcoin total you also have. and someone else said it, but i have 90% of funds in cold store and only play arbitrage with 10% of total. as thats my limit of trust with third parties.
the best volumes and price movements are on the dollar hense using dollar as an example. (slow dollar movement through accounts). id say small amounts below 5btc can get away with altcoin arbitraging. large amounts 20btc($10k+) can require bank transfers alot, just to be on high volume exchanges

[crazyivan]

Heh, that is really cunning plan. But I am really interested in experiences of people who have been actually doing arbitrage. With this constant 2% spread on average between exchanges, there must be some people who profit on this. Am I the only one making money on BTC arbitrage?

2% spread on exchanges does not include withdrawal fee's etc. so as long as you have large enough order sizes that can compensate the fee's and have an amount of dollar/alt/bitcoin on both exchanges for instant use. then the arbitrage is just the slower movement of funds to replenish the reserves you have just used in the trades.

sometimes its not worth it for a 1-2% as the time to replenish the reserves can make you miss out on bigger price changes.
(getting dollar from exchange A to exchange B is not a 10 minute task)

best method.. say you have $10k investment split it up into 4 reserves of $2.5k

exchange A
$2.5k deposited into here and left as dollar
$2.5k deposited and turned into bitcoin

exchange B
$2.5k deposited into here and left as dollar
if lower in price $2.5k deposited and turned into bitcoin
if higher in price use Exchange A to buy the bitcoin with the deposited reserve and transfer bitcoins to exchange B
and deposit the spare 4th $2.5k into exchange A to replenish that dollar reserve

now the rest is a juggling game

i mess around with arbitraging bitcoins with altcoins(fast exchange withdrawal/deposits). so feel free to replace the '$2.5k' with an altcoin amout of your choosing that matches bitcoin total you also have. and someone else said it, but i have 90% of funds in cold store and only play arbitrage with 10% of total. as thats my limit of trust with third parties.
the best volumes and price movements are on the dollar hense using dollar as an example. (slow dollar movement through accounts). id say small amounts below 5btc can get away with altcoin arbitraging. large amounts 20btc($10k+) can require bank transfers alot, just to be on high volume exchanges

Now this is the answer I was searching for. Franky1, thank you very much for this detailed plan, I ll try something similar, only with a bit lower investment. How I miss those days when Bitinstant and Mtgox were around.

[Minerjoe]

What is Bitinstant?