Cryptos and Arbitrage; A Startup Looks to Help Traders

As cryptos mature and become a recognized part of the financial space, they are facing many of the same growing pains, or problems, that other financial vehicles face.

The space is also offering more opportunities – you just have to look.

One of those opportunities relates to cryptocurrencies and arbitrage trades, and one company in particular is developing tools to help traders take advantage of these opportunities.

It’s a startup called Arbitraj.

Let’s discuss.

Arbitrage occurs when a trader buys a security in one market and at the same time they sell it in another market at a higher price, profiting from the temporary difference in prices. Many consider such deals as a way to make a profit without risk.

In the case of cryptos, it’s thought that there’s a way to take advantage of the space’s pricing imbalances.

One observer noted that arbitrage potential between exchanges is recognizably large. This shows how immature the market, considering it’s not decentralized,nor regulated.

Understanding the ways to make even more money in the crypto space, a startup called Arbitraj has developed a web app and Google (NASDAQ:GOOGL) Chrome plug-in that lets users see the price spreads for cryptos when they browse exchanges.

For now, it’s just in beta mode, allowing roughly 500 users access.

To Business Insider, the company’s cofounder, Jason Flack, said the following.

"It works right now, basically we're just adding more exchanges. In the platform, we actually calculate the subtraction cost subtracted from the percentage spread that you're going to receive."

He sees that there are large spreads just between US-based and non-Korean exchanges, noting that they are at least five percent.

“For crypto, the reason we might say it's small is because it used to be 30%. If you talk to anyone in the forex space, 5% is insane, it's unheard of."

Flack has also said:

“To drive more volume to an exchange, you might price your assets a little bit cheaper. You’ll see the ones in South Korea, for example. They are charging premiums on their bitcoins because there’s so much demand. They can’t access Coinbase, they can’t access Bittrex, and they can’t access any of these U.S. exchanges.”

Business Insider reported that the company’s efforts have even attracted hedge funds that want to take advantage of the opportunity.

One of the things noted by Flack concerning arbitrage relates to novices. He noted that often, those in the space tend to make the same trades, which for arbitrage opportunities, the spreads disappear.

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Notes Business Insider:

However, there arbitrage opportunities do open up and cryptocurrency markets lack the unified infrastructure of more advanced markets that supports this kind of complex trading. Cryptocurrency market participants are also relatively unsophisticated. The bulk of the market is made up of retail traders who lack the resources to exploit these loopholes to their full potential.