How Arbitrageurs Are Making Money in the Crypto Crash


It may 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 limit on the cryptocurrency market was $ 904 billion, a huge drop from $ 3 trillion in November.

The fact remains: there are strategies to make money during the cryptocurrency crash and arbitrage traders are using them.

It is usually appropriate to describe arbitrage as the simultaneous buying and selling of an asset to benefit from small price discrepancies between markets. When those differences are small, speed rules them all. Arbitrage uses algorithms to find opportunities and bots to exploit them before the gap closes.

That’s the core of high-frequency commercial companies like Citadel and Tower Research Capital.

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

During the conversation he shared his screen and showed that in several decentralized and centralized cryptographic exchanges, the delta, or price difference, for Bitcoin (arguably the most liquid cryptocurrency) was $ 45. This means that someone could have bought $ 45 Bitcoin in one exchange and doubled their money to sell it for $ 90 in another.

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

Fluid Finance, a liquidity aggregator, uses artificial intelligence to anticipate price fluctuations in centralized systems (such as Binance e Coinbase) and decentralized exchanges, or DEX (how 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 an enemy of arbitrage traders because we use the same strategies as them to predict the market using hyperscale and quantitative learning strategies that are used in the world of high frequency trading,” Ismail said. “And we use that to predict the market and provide customers with the best possible execution.”

Because there is so much fragmentation and lack of liquidity in the crypto market, there is enough room for companies like Fluid and arbitrage to coexist.

A lot of arbitrage can also be fully executed in the chain, said Juan Pellicer, research analyst at cryptocurrency market intelligence firm IntoTheBlock. Decipher.

For example, Pellicer said finding a triangular arbitrage opportunity in the chain might look like this: a trader notes that he can buy 1 Wrapped Ethereum (wETH) for 1400 DAI on SushiSwap and that wETH, a version of Ethereum which can be used in other blockchains, then sold on Uniswap for 1,500 US dollars (USDC).

“Ter DAIwe could buy ETH for $ 1,400 at Sushiswap and it sells for $ 1,500 on Uniswap, earning $ 100, “he said.

In a turbulent market, it helps that the last trade of that strategy is to stablecoin. It reduces the chance that the trader will be left with an asset that will go down in price before he can make a profit.

Flash loans and arbitration

Caleb Sheridan, co-founder of Eden Network, said an even more sophisticated version of arbitration includes flash loans. Decipher.

“It can practically create value from the air with atomic arbitrage,” he said. “You don’t have to have any capital or take risks with a lot of funds. You start with a flash loan, buy an asset, sell it at a higher price, and pay off the loan in one transaction. Your profit is what you have left over.” .

What is lacking in atomic arbitration in the number of people who know how to do it, compensates with the competition among those who do understand it.

That’s part of the reason the Eden network exists. The protocol allows merchants to secure the placement of their transaction in a particular block on the Ethereum network.

“Anyone can analyze the numbers in Ethereum and find out if there is an imbalance and find out the best and most efficient way to clean up the imbalance,” Sheridan said. “It creates like a search engine game that there are a lot of people who look at the same opportunities and compete with each other.”

Exemption from liability

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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