< backAugust 15, 2020

Bitcoin Arbitrage 2021 | Is Crypto Arbitrage Trading a Scam?


Bitcoin arbitrage is an easy way to make guaranteed trading profits by taking advantage of different Bitcoin prices listed at different exchanges. 

Put simply, a basic crypto arbitrage strategy will see traders buy coins like Bitcoin on one exchange, before selling coins at other exchanges where prices are higher. The only question is, does Bitcoin arbitrage trading really work?

Bitcoin Arbitrage for Beginners - How Crypto Arbitrage Trading Works

In theory, Bitcoin arbitrage trading offers people a zero-risk way to make major trading profits. Moreover, how arbitrage trading works is simple.

The price of Bitcoin on cryptocurrency exchanges is determined by the value of the last trade that was executed on an exchange. Because of this, the price you pay for Bitcoin on exchanges like Coinbase won't always be the same as the price you pay on exchanges like Kraken. 

There can also be major differences between the price of Bitcoin in different geographic areas. The most famous example of this is a phenomenon known as the Kimchi Premium.

  • The Kimchi Premium refers to a phenomenon where the price of Bitcoin on exchanges in South Korea, can trade at $1,000 higher than on exchanges in the United States.

  • Major differences between the price of Bitcoin in the U.S. and Korea, are the result of higher Korean demand for Bitcoin.

  • As the most famous example of a Bitcoin arbitrage opportunity, traders can sometimes buy Bitcoin in the U.S. that they then sell on Korean exchanges for a $1,000 (or higher) markup.

It is Bitcoin arbitrage opportunities like the Kimchi Premium, which draw many people to crypto arbitrage trading. However, differences between the price of Bitcoin on different exchanges aren’t always so dramatic. Neither is taking advantage of crypto arbitrage opportunities as easy in practice as it is in theory.

Is Crypto Arbitrage Really Profitable?

Is arbitrage trading a really sure-fire way to make free money out of thin air? In theory, this is exactly what Bitcoin arbitrage trading is. 

Sadly, many people dive into crypto arbitrage trading without accounting for several factors that can result in traders making significant losses. 

  • Arbitrage opportunities disappear fast. To make any kind of profit, buy and sell orders on different exchanges need to be executed simultaneously. 

  • Traders need to calculate potential arbitrage profits in a way that accounts for fiat cash deposit and withdrawal fees on each of the exchanges they use to execute trades.

  • Traders also need to account for Bitcoin deposit and withdrawal fees, taxes, and minimum BTC deposits and withdrawal thresholds on exchanges.

In many cases, traders who stand to only make $10 to $50 in profit from crypto arbitrage opportunities, will not make any profit when they factor in other trading expenses. In fact, many traders will struggle just to break even.

Other Barriers to Bitcoin Arbitrage Trading

In almost every case, people who promote crypto arbitrage trading omit to mention how difficult it can really be to make a profit. However, it is not just trading fees that new traders need to keep in mind when starting to research arbitrage trading.  

For any crypto arbitrage trading strategy to be successful, traders need to have accounts on several different cryptocurrency exchanges. This can be problematic, as most exchanges in 2020 only serve users who reside in specific local areas.

  • If you are a U.S citizen, you cannot make or verify accounts with cryptocurrency exchanges in places like South Korea. 

  • When exchanges have reason to believe that you might be using a VPN or false ID to use their services, they can freeze your account, as well as any funds deposited therein.

  • Peer to peer cryptocurrency exchanges do allow worldwide users to signup and use their platforms. However, scams on peer to peer exchanges are common.

Because most exchanges only serve local users, taking advantage of Bitcoin arbitrage opportunities like the Kimchi Premium is almost impossible in 2020. 

Sadly, thousands of people every year get drawn to crypto arbitrage trading without realizing just how difficult trading profitably can be. Worse, many new traders fall victim to all-out Bitcoin arbitrage scams.

Bitcoin Arbitrage Scams  

In the early days of the cryptocurrency market, taking advantage of Bitcoin arbitrage trading opportunities was easy. 

Up until 2018, most cryptocurrency exchanges were happy to serve users from anywhere globally. However, stricter regulations on exchanges now make Bitcoin arbitrage trading almost impossible. 

Sadly, as crypto arbitrage trading has become more difficult, there has been a simultaneous rise in the number of crypto arbitrage scams online.   

  • At present, hundreds of websites exist that promise to take care of crypto arbitrage trading on your behalf. All you need to do is deposit Bitcoin on their exchange or platform.

  • Scam Bitcoin arbitrage exchange websites will often say that they use trading bots, sophisticated trading algorithms, and real traders in different global locations to execute profitable arbitrage trades on behalf of users.

  • Often, Bitcoin arbitrage exchange scams lure users with the promise that they will earn guaranteed returns every day, week, or month, regardless of whether the price of Bitcoin is going up or down.

Have you recently stumbled upon a Bitcoin arbitrage exchange website that says you can start earning profits instantly? If so, it is likely a scam. In some cases, platforms will initially payout trading profits. However, all will eventually make it impossible for you to withdraw any amount of Bitcoin you deposit.

In short, unless you have a way to identify real arbitrage opportunities on different exchanges, before executing trades instantly (and legally) yourself, you will not make any kind of profit from arbitrage trading.

Related topics:

1. Crypto Arbitrage vs. Bitcoin Gambling