Arbitrage is one of the least risky methods of trading at cryptocurrency sites – there is a unique possibility today to earn benefiting from the fact that the rate of one and the same cryptocoin may sometimes vary slightly at different exchanges. It may seem that risks are minimal in such financial game, however, there are a number of factors that may appear an insuperable barrier on the way to profit. In this article, we are going to analyze the difficulties facing the investors and arbitrage traders.
Rate Instability
The main stumbling block in cryptocurrency arbitrage business is the asset volatility, with cryptocoin price being extremely variable. In the course of the day, the rate of electronic money may surge or drop by 20%, with no one knowing when and why the quotations come into motion. This is good for a conventional trading, but disastrous for arbitrage.
Delays in Purchase and Sale Transactions
The situation is aggravated by payment transaction delays typical for the cryptoworld – final close of transaction requires payment verification in the blockchain, which is done by miners. If the blockchain network is overloaded, waiting for such verification may take hours: the rate of digital coin may undergo significant changes during that time.
And besides, transaction verification does not mean for sure that electronic money will automatically replenish the trader’s exchange wallet. One should remember that almost all cryptocurrency exchanges have their own trading sites in no way related to the blockchains of particular digital asset. Owing to this fact, deals may be effected very rapidly – the exchange simply transfers its coins to the user’s account, without waiting for verification. But when the exchange’s resource comes to an end, it is compelled to buy coins and wait for verification, which may take too long.
Indirect Acceptance of Money at Exchange Account
All the funds transferred to client accounts are first credited to the exchange balance, and only then accepted at users’ personal accounts. Investors should be ready to wait for money transfer, sometimes for hours. Similar red-tapery takes place when money are withdrawn from exchange. The time for money acceptance depends on the cryptoexchange workload and on the number of users being serviced. Moreover, experience has proven that cryptoassets leave users’ exchange accounts even slower than are received.
The chances of getting a considerable profit from cryptocurrency arbitrage increase if trader’s assets are stored at least at two exchanges. In case of a perfect scenario, the rate of digital coins should differ to the maximum at these sites. As a rule, experienced traders operate at several exchange sites, without forgetting to monitor the rate climate at each of them. In doing so, they are assisted by the signals generated by respective software, and by arbitrage robots. The bots inform the player of when the propitious moment occurs for effecting a lucrative deal, and are also able to effect a transaction on their own.
Some Exchanges Are Unavailable to Foreign Investors
Not all cryptocurrency exchanges are ready to make their sites available for anyone who will take the trouble. For example, many Asian exchanges are unavailable to foreign investors, that is why the rate of digital assets is often higher there. Prior to introduction of sanctions against the cryptocurrency sphere, a simplified form of registration was available at South Korean exchanges. It was sufficient for the trader to specify the telephone number serviced by a South Korean operator, and to present a scanned copy of passport of a South Korean resident. In case of a non-resident investor, he/she could submit a visa permit.
When Chinese cryptoexchanges got closed one by one, this was the beginning of Chinese traders’ mass outflow to the Republic of Korea for cooperation with local sites. The oddity of the situation consisted in the fact that Chinese players, who derived profit from cryptocurrency auctions in South Korea, paid no taxes or paid them to their country’s treasury. The ruling elite of South Korea turned against such a state of affairs, claiming that another country’s residents should not avoid taxation in the country that gave them the opportunity to earn money.
This was the reason why Seoul resolved to grant the right for the use of cryptoexchanges only to citizens of the Republic of Korea. Banks were forced to freeze accounts of cryptoexchanges. At the same time, traders’ funds were blocked as well. It was announced that the freeze would last until the time when the exchanges adopt a clear mechanism of determination of their participants’ national identity.
State Intervention: the Risk of Fund Blocking at Exchanges
Fund blocking is the most efficient method of state structures’ influence on the cryptosphere. It is no surprise that the method was also used by the government of India. Following the South Korean scenario, they blocked all wallets of national cryptoexchanges, and Indian traders got the demand to file their 2017 reporting and to pay taxes to the treasury. Looking forward, the government of India may require full identification of cryptocurrency exchange participants.
It is evident that many countries chose to apply the screw-tightening policies to the cryptocommunity. For this purpose, exchange wallets are blocked in banks, and the exchanges are pressed to adopt more stringent rules regarding user identification.
The official explanation for such an intensive intervention by authorities is elimination of speculative activities. Digital assets gradually come out of the shadow and morph into a regulated tool of interaction. However, as they come under control of government agencies, the cryptocurrencies gradually lose their very essence.
Comprehensive Solution: Investment Arbitrage
On the other hand, new solutions emerge for investors, enabling them to minimize risks on the basis of new technologies. Amateur investors may free their minds of rate-related agitation and ensure a constant profit they can truly rely upon. Today, the CRYPSTOCK project is under preparation for its launch to ICO, the site accepts investments and uses the funds in arbitrage deals, while investors earn income in proportion to the investment volumes.
The system that has buffer accounts at thirty cryptocurrency exchanges at the same time is capable of effecting dozens of high-volume deals each hour, with the auctions being conducted in the upper order of sales only, which brings additional savings of 1% to 5%. Technologies ensure a high transactional speed and enable making some 20 deals per second.
The main feature is that the system cannot lose money: the first deal simply will not be effected in the event there is no profit from the second transaction. Owing to this fact, no investors can be at a loss (as it has frequently happened to traders since last December until now).
The system is already operational, with its CRYPSTOCK test version demonstrating real-time anomalies taking place at the moment (you can have a look at the test version on the official site). That is why the project is not something that exists in the fantasy of its developers – the release version is already available, and you can see everything for yourself. Investors may contribute their funds at the ICO stage already – following the project launch, when the coins become more expensive, the capital will automatically grow. For more details on ICO conditions and additional offers please visit the official website: www.crypstock.io.
Conclusion
The play on rate differences allows arbitragists to get a decent “crop”. That said, even an experienced trader may face unexpected difficulties in the course of such earning. In order to avoid being taken aback, they should remember the key rules of Inter-Exchange arbitrage, and be wary of the state sector’s close attention to the cryptocurrencies. The investors, who desire to gain profit in a calm atmosphere and not to be exposed to the abovementioned risks, should take a closer look at the CRYPSTOCK project and consider the possibility of their participation in ICO.
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