This article covers the basic introduction to the cryptocurrency arbitrage and its profits. It describes an arbitrage strategy that is commonly referred to as “The Loop”.
What is cryptocurrency arbitrage?
In the previous section, we defined a Bitcoin (or crypto-currency) arbitrage as the practice of taking advantage of the price difference of Bitcoin (or any other crypto asset) that occurs between two crypto exchanges.
The idea is to buy cheap on exchange A, transfer to exchange B where you can sell for more.
The learning curve
The first time I noticed that I could buy Bitcoin cheaper on Xapo/Binance/Coinbase than on Luno , I typically followed the Loop strategy, and discovered several pitfalls.
Back when Bitcoin was trading at $14000 (before the December 2018 crash), these opportunities were abundant. The process was simple (I was living in South Africa at the time, so simple is a relative term)
Step 1. Wait for the price at Luno to exceed the price at Xapo
Step 2. Buy Bitoin at Xapo (because in SA that was pretty much the only option at the time – South Africans are subject to strict exchange control regulation)
Step 3. Send Bitcoin to Luno from Xapo
Step 4. Sell Bitcoin at Luno
Step 5. Withdraw funds from Luno