Every day of the week sees tens of billions of dollars worth of cryptocurrency change hands.
Millions of trades occur to make this happen, showing how viable the crypto market is, especially now that you can buy litecoin even though prices are different on different exchanges. This has given birth to several ways of making money online with crypto: cryptocurrency arbitrage.
This article focuses on crypto arbitration and its pros and cons, if you’re considering turning it into a business.
What is crypto arbitrage?
Crypto arbitrage is a unique money-making strategy that involves taking advantage of a particular asset by trading at different prices at different cryptocurrency exchanges.
In simple words, when you purchase a cryptocurrency asset at a lower price at one crypto exchange and sell it off at a higher price on another cryptocurrency exchange, you have just utilized the crypto arbitrage money-making method.
There are two types of crypto arbitrage trading:
- Crypto arbitrage that occurs within the same cryptocurrency exchange
- Cryptocurrency arbitrage that takes place between two or more crypto exchanges
Crypto arbitrage within the same cryptocurrency exchange involves taking advantage of a few variations in price differences. But trading between exchanges is the basic way of making crypto arbitrage work. This is because different crypto exchanges will always have slightly different markets.
Pros and cons of crypto arbitrage
Arbitrage is an established and well-known practice within several markets. So, there is no need to consider whether or not cryptocurrency arbitrage is profitable.
However, as with all things, considering the pros and cons of the cryptocurrency arbitrage business is vital.
Pros of crypto arbitrage business
The pros of running a crypto arbitrage business are:
- Access to a wide range of money-making opportunities
New markets, coins, and even crypto exchanges are emerging almost daily in cryptocurrency. This gives rise to several brand-new avenues for running a crypto arbitrage business.
There are approximately 500 crypto exchanges worldwide, each with slightly different prices for different digital coins.
- Fast profits
The potential for fast profits exists since you will only be buying crypto assets from one exchange and selling them off at another within minutes. This is faster than conventional trading, where people usually buy cryptocurrency, hold them for a few days, and sell them much later.
- The volatility of cryptocurrencies
The volatility of digital coins makes it enticing to traders and risk-takers. This means that crypto arbitrage traders have more opportunities since there can be significant price changes within cryptocurrency exchanges.
- Growing crypto market
The crypto market is still growing since world governments have not accepted or adopted it. As a result, there is a lack of information transfer, disjoining, and some irregularities.
However, the number of crypto traders is few, especially compared to traders in traditional markets. This means less competition within the crypto market, resulting in highly profitable price differences.
Cons of crypto arbitrage business
The cons of running a crypto arbitrage business include:
- Start-up capital
You need substantial starting capital to profit significantly from a crypto arbitrage business. Unfortunately, most beginner crypto arbitrage traders don’t have that kind of funds.
This is usually a hidden barrier that crypto arbitrage traders must contend with. Since you will be operating with small profits in most cases, you will need to bear withdrawal fees, exchange or network fees, and other trading fees. These can severely impact the profitability of crypto arbitrage. In some cases, you may suffer losses.
- Withdrawal limits
Withdrawal limits are always in place for larger capital amounts and large trades. In addition, many crypto exchanges set limits for traders. Unfortunately, this means you may be unable to access your profits immediately.
- Anti-money laundering restrictions and rules
This is not really a disadvantage of running a crypto arbitrage business. However, since you will be running this business across multiple crypto exchanges, you must comply with KYC regulations.
It could involve holding a bank account within the same country where the exchange is based. This could be problematic and time-consuming to put together.
Running a crypto arbitrage business is a profitable venture. However, you need to consider its pros and cons before launching out. Hopefully, this article opens your eyes to the factors you should consider before starting and running a crypto arbitrage business.
Freelance showbiz writer
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