Token Arbitrage

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Simple Trading to take advantage of Cryptocurrency Arbitrage among Exchanges and Currency Spreads

One of the most interesting areas that we have observed is the extreme inefficiency between crypto exchanges, thus providing arbitrage opportunities. It is something that everyone has also noticed and are talking about these days.

 

Is this opportunity real or is it possible to launch a hedge fund to become the next Medallion Fund?

The answer is yes… if you know how to do it.

 

Buy in US and Sell in Korea to make 20% return within 5 minutes!

 

Korea has always shown good spreads from the other markets.

If you can buy from most of the major crypto exchanges and sell it in Korea, you can make 20-30% within minutes. (Do note that it can take hours to clear transactions these days. It may take days when trading volume becomes too big suddenly like the recent Ripple case)

The idea is that simple.

But how come not everyone is doing it? (Or is anyone even doing it?)

There are in fact a couple of issues to overcome in order to make it happen.

 

1) To make a real risk free deal, two transactions need to happen at the same time. It is supposed to be faster and better than the existing banking (SWIFT) system.

But if you have tried, it is not that FAST yet. A blockchain transaction on its own is very fast but crypto exchanges are not able to support the traffic as quickly.

Korean exchanges have about 1-2 million active users, yet Bithumb, as one of the largest exchanges in Korea, was already accounting for 1-3 billion of trading volume of Ripple over the last few days! It is not easy to build a system to handle those large traffic.

 

2) The Korean capital market is heavily controlled.

If you are a resident in Korea, probably you are not allowed to have an offshore account and vice versa for foreigners looking to have a domestic account.

 

3) Higher level of compliance guidelines for Exchanges are being introduced. (in phases)

For this trading style, it is difficult for individuals to execute properly. Also, the accounting for crypto assets, amongst others are also not so clear for corporates. Nonetheless, many industry players are coming into the market while working hard to find ways to tap onto this opportunity as markets have grown much bigger and that the regulator is moving in to build a proper system.

 

Overall, it looks like the crypto market is becoming more institutionalized.

2017 was a very important year for Crypto players. Many of major cryptocurrencies’ prices went up by 10-100 times (or more!). Cryptocurrencies such as Bitcoin and Ethereum, as well as most of cryptocurrency investors had an amazing year.

 

It hasn’t stopped there.

 

1) CME and CBOE introduced Bitcoin futures at the end of 2017. The volume, small but growing.

It is expected that more products will be developed over time to serve the sophisticated investors.

 

2) Initial Coin Offering (ICO), for one, has became a game changer to the fundraising industry.

It has affected the Venture Capital industry and Crowdfunding. Many regulators have started to issue guidelines to address this properly.

 

So what can we share or expect in 2018?

If you are an average retail investor, please spend some time to understand what cryptocurrency is and have small exposure with your risk capital. If you are young and more aggressive, you may consider putting a small allocation of your income (5-10%) in crypto assets too.

If you are an institutional investor or industry professional, you should look at it more seriously. We are not looking at 1000 times return but developments in the crypto space are affecting markets. Their trading volumes are bigger than normal stock exchanges in many markets already and regulators are addressing it.

 

To get a better sense of the developments, the LATTICE80 team is developing a Bloomberg-like tool to understand Crypto space better.