How Arbitrators Are Making Money In The Crypto Crash


It might seem a bit morbid to talk about making money in a downturn that has seen Bitcoin and Ethereum struggle to hold prices above $20,000 and $1,000 respectively. As of Monday morning, the global cryptocurrency market capitalization was $904 billion, a huge drop from $3 trillion in November.

The fact remains: there are strategies for making money during the crypto crash, and arbitrage traders employ them.

It is generally appropriate to describe arbitrage as the simultaneous buying and selling of an asset to take advantage of tiny price discrepancies in the markets. When these differences are minimal, speed reigns supreme. Referees use algorithms to find opportunities and bots to exploit them before the gap closes.

It is the heart of high frequency trading companies like Citadel and Tower Research Capital.

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

During the conversation, he shared his screen and showed that on several decentralized and centralized crypto exchanges, the delta, or price difference, for Bitcoin (by far the most liquid cryptocurrency) was $45. This means someone could have bought $45 worth of Bitcoin on one exchange and doubled their money selling it for $90 on another.

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

Fluid Finance, a liquidity aggregator, uses AI to predict price movements in centralized markets (like Binance and Coinbase) and decentralized exchanges, or DEX (As Uniswap and curve). Then, Fluid sells assets to users, like Bitcoin, at the best price and takes care of settlement with the exchange.

“We are kind of the enemy of arbitrage traders in that we use the same strategies as them to predict the market using large scale learning and quantity based strategies that are used in the market. world of high-frequency trading,” Ismail said. “And we use it to predict the market and give clients the best possible execution.”

Because there is a lot of fragmentation and illiquidity in the crypto market, there is enough room for companies like Fluid and arbitrageurs to co-exist.

Many arbitrages can also be executed entirely on-chain, said Juan Pellicer, research analyst at crypto market intelligence firm IntoTheBlock. Decrypt.

For example, Pellicer said finding an on-chain triangle arbitrage opportunity might look like this: A trader notices that he can buy 1 Wrapped Ethereum (wETH) for 1400 DAI on SushiSwap and that wETH, a version of Ethereum which can be used on other blockchains, can then be sold on Uniswap for 1,500 US Dollar Coin (USDC).

“Having AIDwe could buy ETH at $1,400 in Sushi swap and sell it for $1,500 to Uniswap, earning $100,” he said.

In a turbulent market, it is useful that the last trade of this strategy is a stablecoin. This reduces the risk of the trader ending up with an asset that will go down in price before they can make a gain.

Flash loans and arbitration

An even more sophisticated version of arbitrage involves flash loans, said Caleb Sheridan, co-founder of Eden Network. Decrypt.

“You can practically create value out of thin air with atomic arbitrage,” he said. “You don’t have to have any kind of capital or take risks with a huge bankroll. You start with a flash loan, buy an asset, sell it for a higher price, and repay the loan in one transaction. Your profit is what remains.

What atomic arbitration lacks in the number of people who know how to do it, it makes up for in competition among those who understand it.

This is part of the reason the Eden Network exists. The protocol allows traders to guarantee placement of their transaction in a particular block on the Ethereum network.

“Anyone can crunch the numbers on Ethereum and determine if there is an imbalance and figure out the best and most efficient way to eliminate the imbalance,” Sheridan said. “It creates like a game between researchers, there are a lot of people looking for the same opportunities and they are competing against each other.”


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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