Arbitrage in the cryptocurrency market (Crypto Arbitrage) is a strategy to profit from price differences of the same currency between different trading platforms. The idea is simple but requires speed and precise execution.
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Simple example:
The price of Bitcoin on the Binance platform: $26,000
Its price on the Kraken platform: $26,200
You can:
1. Buy Bitcoin at $26,000 from Binance
2. Transferring it to Kraken
3. Selling it at $26,200
Profit = $200 (minus fees)
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Types of arbitrage:
1. Arbitrage between platforms (Spatial Arbitrage)
The difference between the price of the same currency on two different platforms.
It requires having pre-funded accounts on every platform to avoid slow transfers.
2. Arbitrage within a single platform (Triangular Arbitrage)
Exploiting price differences between 3 different pairs within the same platform.
Example:
BTC → ETH → USDT → BTC
If the final result > what you started with = profit.
3. Statistical Arbitrage
Using mathematical models and algorithms to predict temporary price movements.
Relies on automated trading and artificial intelligence.
4. Decentralized arbitrage (DEX Arbitrage)
Exploiting price differences between decentralized exchanges like Uniswap and PancakeSwap.
It is often done via smart contracts or bots.
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Challenges and Risks:
Fees: Transfer and trading fees can eat into profits.
Speed: The market moves quickly, and opportunities may disappear within seconds.
Delays in transfers: especially when transferring between platforms.
Legal restrictions: Some countries may prohibit transfers or subject them to monitoring.
Market volatility: the price may change while you are in the middle of the trade.
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Are there tools or bots for that?
Yes, there are tools like:
ArbitrageScanner.io
Bitsgap
HaasOnline but using it requires a strong understanding and experience, some of them are paid.
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If you want, I can explain how to create a simple manual arbitrage system using Excel or Python, or help you understand a ready-made arbitrage bot. Would you like that?
The most famous users of arbitrage
Arbitrage is one of the oldest and most famous profit strategies in financial markets, used by major investors, but specifically in the world of cryptocurrencies, here are the most notable names and groups known for using it:
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1. Sam Bankman-Fried – Founder of FTX
One of the most famous users of arbitrage in cryptocurrencies.
Made huge profits through what is called "Kimchi Arbitrage (Kimchi Premium):"
In 2018, the price of Bitcoin was 10–15% higher in South Korea than in other markets.
They exploited this difference by buying from America and selling in Korea.
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2. Allison Wang and the Alameda Research team
Alameda Research (also founded by Sam) relied heavily on arbitrage.
Used high-speed bots for arbitrage between platforms and markets.
Despite the collapse of FTX, arbitrage activity was a major reason for Alameda's growth.
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3. Jump Trading
A large traditional trading company that entered the crypto market and used algorithmic arbitrage.
Relies on arbitrage between centralized and decentralized markets.
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4. Wintermute
A company specialized in market making and arbitrage.
Providing liquidity for currencies on more than 50 platforms and exploiting price differences.
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5. Anonymous users via bots (like Flashbots in DeFi)
In the world of decentralized finance, millions of dollars in arbitrage are executed automatically through:
MEV Bots (Maximum Extractable Value)
Flash Loans: Instant loans that exploit arbitrage opportunities without the need for actual capital.
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Can individuals benefit from arbitrage?
Yes, but:
The market became more efficient, and opportunities are short-lived.
Requires speed, capital, and perhaps programming a simple bot or using ready-made tools.
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Do you want me to show you how the famous "Korean arbitrage deal" was step by step?
Beautiful, Karim. Let me explain to you step by step how Sam Bankman-Fried and his team at Alameda Research executed the famous arbitrage deal in South Korea, which was named:
> "Kimchi Premium"
(Referring to the famous Korean dish, a metaphor for the high price difference of Bitcoin in Korea).
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Background:
In 2017–2018:
The price of Bitcoin in South Korea was 10% to 20% higher than the global price.
The difference results from high demand within Korea and the difficulty of transferring money abroad due to regulations.
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A real example of the numbers (approximate):
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The steps followed by the Alameda team:
1. Buy Bitcoin from the cheaper market
They buy BTC from America or Japan at a price of $10,000.
2. Transferring Bitcoin to Korea
They send Bitcoin to a Korean platform like Bithumb or Upbit.
3. Selling Bitcoin in Korea
They sell it in Korea for $11,000, yielding an instant profit of $1,000 on each BTC.
4. The problem: How to get the money out of Korea?
Korean laws were strict regarding transferring money out of the country.
So they used smart methods:
Establishing relationships with local banks and partners.
Paying Korean citizens to buy BTC internally.
Sometimes repurchasing BTC in Korea and transferring it abroad.
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Challenges they faced:
Legal restrictions.
The need for a large capital distributed across multiple accounts.
Market speed (the opportunity disappears within minutes).
Regulatory risks.
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Result:
Sam stated that they were making a million dollars a day during some periods just from this process.
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Lessons learned:
Real arbitrage is not just about price differences but also:
With fast execution.
Overcoming legal barriers.
Smart liquidity management.
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