How Arbitrators Are Making Money in the Cryptocurrency Crash

It might seem a little morbid to talk about making money in a recession that has seen Bitcoin and Ethereum struggle to keep prices above $20,000 and $1,000, respectively. As of Monday morning, the global cryptocurrency market cap was $904 billion – a big drop from $3 trillion in November.

The fact remains: there are strategies for making money during the cryptocurrency crash, and arbitrage traders are employing them.

Generally, arbitrage can be described as the simultaneous buying and selling of an asset to profit from small price discrepancies between markets. When these differences are small, speed dominates. Referees use algorithms to find opportunities and bots to exploit them before the gap closes.

This is essential for high-frequency trading companies like Citadel Securities and Tower Research Capital.

But you don’t have to be a quant to make money with an arbitrage strategy now, said Ahmed Ismail, president and CEO of Fluid Finance. decrypt.

During the conversation, he shared his screen and showed that on various decentralized and centralized cryptocurrency exchanges, the delta, or price difference, for Bitcoin (by far the most liquid cryptocurrency) was $45. That means someone could have bought $45 worth of Bitcoin on one exchange and doubled their money by selling it for $90 on another.

“I have friends who, frankly, aren’t very smart, making a lot of money with very, very simple strategies like this,” Ismail said. “These are people who have two years of trading experience.”

Fluid Finance, a liquidity aggregator, uses an AI to anticipate centralized price fluctuations (such as Binance and Coinbase) and decentralized exchanges, or DES (Like uniswap and Curve). Then Fluid sells assets to users, like Bitcoin, at the best price and takes care of the settlement with the exchange.

“We are kind of enemies of arbitrage traders as we use the same strategies as them to predict the market using hyperscale learning and quant based strategies that are used in the world of high frequency trading,” said Ismail. “And we use that to predict the market and give clients the best possible execution.”

As there is a lot of fragmentation and illiquidity in the cryptocurrency market, there is enough space for companies like Fluid and arbitrageurs to coexist.

A lot of arbitrage can also be performed completely on-chain, said Juan Pellicer, research analyst at cryptocurrency market intelligence firm IntoTheBlock. decrypt.

For example, Pellicer said that finding an on-chain triangular arbitrage opportunity could look something like this: a trader realizes he can buy 1 Wrapped Ethereum (wETH) for 1400 DAI on SushiSwap and that wETH, a version of Ethereum which can be used on other blockchains, can be sold on Uniswap for 1,500 US Dollar Coin (USDC).

“By having SOwe could buy ETH for $1,400 in sushi and sell it for $1,500 on Uniswap, earning $100,” he said.

In a turbulent market, it helps that the last trade in this strategy is a stable coins. This reduces the chance that the trader will be holding onto an asset that will fall in price before he can make a gain.

Instant loans and arbitrage

An even more sophisticated version of arbitrage involves instant borrowing, said Caleb Sheridan, co-founder of the Eden Network. decrypt.

“You can create value from virtually nothing with atomic arbitrage,” he said. “You don’t have to have any kind of capital or take risks keeping a huge bankroll. You start with a quick loan, buy an asset, sell it for a higher price, and pay off the loan in a single transaction. Your profit is what’s left.”

What atomic arbitrage lacks in the number of people who know how to do it, it makes up for in competition among those who understand it.

This is part of the reason the Eden Network exists. The protocol allows traders to guarantee placement of their transactions on a specific block on the Ethereum network.

“Anyone can crunch the numbers on Ethereum and find out if there is an imbalance and find the best and most efficient way to eliminate the imbalance,” said Sheridan. “It creates like a game between researchers, there are a lot of people looking at the same opportunities and they are competing with each other.”


The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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