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What is Crypto Arbitrage?

Crypto arbitrage is a huge international business. It is the act of exploiting price differences in an asset in different markets. It involves buying bitcoin overseas and shipping it back to SA to sell it. Arbitrage trading’s holy grail is to eliminate as many risks as possible. The longer you hold bitcoin, the greater your risk of a negative price move destroying your arbitrage profit. Coindirect, a crypto platform, set out to solve the problem. It created a closed-loop system that allows bitcoin to be purchased offshore from the company’s liquidity and then simultaneously sold in SA. This allows for almost instant arbitrage.

Your own Platform

The Coindirect platform allows you to track the entire arbitrage process, making it much easier (and also less risky).

Coindirect claims that it has achieved a net 3.24% return on investment for clients, after taking into account all trade costs. If an individual traded with R100 000, each trade would have earned them R3 240. It is theoretically possible to make 110 trades per year.

Although there is no guarantee that this will happen in the future, Coindirect’s global head for trading, Chris Harmse says that by reducing arbitrage trades to a few seconds, the company has removed many risks associated with arbitrage. “The greatest risk in any arbitrage is how long you are exposed to the markets.

Foreign Currency

He says, “Anyone trying to do this alone would have to buy foreign currency and ship it abroad to an offshore crypto exchange. This normally takes several hours, but can take up to 24 hours in certain cases. During which time the arbitrage opportunity may have disappeared.” You might also have lost your crypto profit because the volatile rand could have moved against you.

“Assuming that the arbitrage premium remains attractive, you will need to purchase bitcoin at an lower price than in SA and then ship it to a South African cryptocurrency exchange. This can take up to an hour and you run the risk of the forex and bitcoin prices moving against you, wiping out your arbitrage opportunity.

“We can do this by using our own balance sheet to hedge clients exposure. This allows us to eliminate the directional currency price and currency risk that you would normally be exposed in arbitrage. Although we cannot eliminate all crypto security exchange risks, this is something that can be done on any exchange.

A built-in Benefit

Coindirect’s clients also have the option to choose the minimum net profit they want. Coindirect will not execute trades if clients have chosen a minimum net profit of 2%. This means that if the arbitrage gap is large enough to cover its costs, Coindirect will not make a trade and the client will receive a profit of 2% or more.

South Africans must use their R1,000,000 per year discretionary allowance to take advantage of bitcoin arbitrage. This allowance does not require approval from the SA Reserve Bank. For those with tax clearance from South Africa Revenue Service, a further R10 million is available under foreign investment allowance (FIA). Coindirect has hired the services of tax experts to assist customers with applying for the FIA.

Big Backers

Coindirect raised EUR1 Million (R17 Miillion) in a seed round led by Concentric with participation from Blockchain.com, MakerDAO-backed Andreessen Horowitz.

Donald Jackson (CTO), and Jesse Hemson–Struthers, both serial entrepreneurs who have multiple exits from JSE-listed companies (Naspers Blue Label Telecoms, Niveus Investments) were the founders of the cryptocurrency platform.

The Financial Conduct Authority in the UK required that all crypto asset service providers apply for temporary registration in January 2018. This was in anticipation of a permanent licensing requirement, which will soon be implemented.

Coindirect offers a platform that allows its 321 000 users to trade more than 40 cryptocurrencies. It also provides a cross-border payment system with same-day settlement. It also offers an Over-The-Counter (OTC), desk that allows private clients and businesses to conduct large-volume crypto transactions. Coindirect has raised more than EUR300 million (R5.1 Billion) since its launch in 2017.


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