With the rising popularity of bitcoin and other cryptocurrencies, the ecosystem related to digital coins is getting a decent fillip. The opening of cryptocurrency exchanges around the globe is one important part of the expanding cryptocurrency sphere. This, in turn, has fuelled the phenomenon of Bitcoin Arbitrage, which can be defined as an activity of buying the Bitcoin on one exchange and selling it at another exchange to earn a profit. It is a process similar to equity markets where people tend to buy shares at low prices and sell them at higher prices to realize the profit.
The fundamental principle behind Bitcoin arbitrage is the difference between prices of Bitcoin on different cryptocurrency exchanges. This price difference becomes a basis for earning the financial profit and motivates investors to buy Bitcoin, where its prices are lower and sell the digital coin on a platform where its prices are high. Given that different cryptocurrency exchanges have different prices of Bitcoin, investors who are fast and have access to the prices of Bitcoin on a real-time basis can certainly take advantage of this different price scenario.
To understand the concept comprehensively, we must know how the prices of Bitcoin are determined on a particular cryptocurrency exchange. Different cryptocurrency exchanges have a different number of buyers and sellers due to which the number of trades will be different on different platforms. On any given day, Bitcoin prices will depend upon the last transactions investors have made on the platform. It is a common understanding that the crypto exchange that witnesses low bitcoin trading volume shows more price volatility on Bitcoin than others.
Illustration of Bitcoin Arbitrage
For the sake of understanding, let us take an example of Bitcoin arbitrage. Assume the prices of Bitcoin on the Binance and Coinbase cryptocurrency exchanges are $11,000 and $11,040, respectively. Now an investor has spotted the opportunity and purchased 100 Bitcoin at Binance and then sold them on Coinbase. The cost of buying 100 Bitcoin comes out to be $11,000,00 ($11,000X100) and revenue from selling will be equivalent to $11,040,00 ($11,040X100). The difference in the revenue and cost, i.e., $4000, will be the investor’s profit. It’s important to understand that there are a host of other factors also involved in the process that will impact the profit of investors, but just for the sake of keeping this example uncomplicated, we have decided to omit them.
In reality, you need to pay cryptocurrency exchange fees while trading Bitcoin, and this fee will reduce your overall profit. In addition to fees of the exchange, there are other types of costs associated with Bitcoin trading. For example, you need to pay fees related to the Fiat and Bitcoin deposit and withdrawal to a cryptocurrency exchange. These charges are not constant and differ from exchange to exchange. Also, the order processing time differs considerably across the spectrum, and there is always a possibility that prices change even during the process when someone buys or sells the crypto.
Bitcoin Arbitrage Opportunities
Given that Bitcoin continues to remain the largest cryptocurrency by market capitalization, it is the preferred choice of the investors looking forward to cryptocurrency arbitrage. The opportunities available in Bitcoin arbitrage is significantly more than in any other cryptocurrency. Also, investors get a chance to maximize their earnings as Bitcoin prices have remained volatile for quite some time now.
Bitcoin arbitrage can help you earn handsome monetary rewards, although you need to do considerable preparation and homework before joining this field. Ensure you get yourself equipped with all basics of the cryptocurrency market and then only start the Bitcoin arbitrage. It is also advisable and recommended that you start with a small amount rather than investing a large sum in Bitcoin arbitrage in your journey. Once you get acquainted with all rules of the game, then you can go ahead and bet large money on bitcoin arbitrage. Apart from that, If you really want to earn money from Bitcoin then you must check out Bitcoin Era – An automated trading platform. It is a platform that enables you to make massive profit from Bitcoin. You can check out more information about it from Bitcoin Era Reviews by experts.