Crypto Chaos Allowing Some to Rake in Billions of Dollars — Here’s How

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In Brief
  • Arbitrageurs are smiling at the bank amid the carnage taking place in the markets.

  • These investors are taking advantage of the price difference in crypto exchanges around the world.

  • However, this class of investors could face extinction as the industry matures.

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Since the start of the crypto winter, investors have lost trillions of dollars but one breed of investors has found a way to profit from the bearish sentiments and it’s not from an advanced reading of charts or paying close attention to fundamentals.

Since the start of the year, cryptocurrency prices have failed to replicate their numbers from 2021 and the recent happenings in the markets have left investors in a state of panic. Bitcoin (BTC) traded at $20,950 for the first time since 2020 while Ethereum and other altcoins posted losses in double-digits.

Despite the negative numbers, arbitrageurs are, according to a Reuters report, exploiting the price differences of cryptocurrency assets across cryptocurrency exchanges. Their tactics have seemingly made them a fortune since the start of the year and have been employed by hedge funds and other money managers.

“In May when the market collapsed, we made money. We are up 40 basis points for the month,” revealed Anatoly Crachilov, CEO of Nickel Digital Asset Management in praise of their arbitrage strategy.

A recent report by PriceWaterhouseCoopers (PwC) revealed that this strategy is gaining popularity among hedge funds with a third admitting to using this method. K2 Trading Partners affirmed that its crypto arbitrage fund had made gains of 1% in the face of the 30% slump faced by Bitcoin while Stack Funds arbitrage fund survived the market onslaught with only a 0.2% loss.

Arbitrage players thriving in chaos, but for how long?

Typically, arbitrage trading involves buying a crypto asset at a lower price and then selling the asset at a higher price, making a profit off the difference. While it seems like an easy strategy, investors will need to have access to multiple markets and use advanced algorithms to make healthy profits.

Hugo Xavier, CEO of K2 Trading Partners noted that the lack of uniformity among crypto exchanges made it ideal “because you have different prices and that creates arbitrage opportunities.” Xavier stated that arbitrage opportunities thrive in periods of chaos and investors should pay close attention to “market stress situations.”

“If the markets are moving sideways or going down, retail traders cool off,” said Xavier. “Opportunities are fewer because most of the people there are market makers and they are efficient.”

Katryna Hanush of Wintermute warns that although crypto arbitrage is in fashion, it could hurt the markets in the long run. “As more institutional players come into the space, the arb opportunities will be eliminated,” said Hanush.

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Wahid loves to write, especially about Crypto and Blockchain. He started his blogging journey in 2017 and turned to crypto in 2019. Wahid is interested in tech, chess and DeFi. He aims to promote decentralization to everyone on the planet.

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