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Others here are missing the point. Until platforms like Bitfinex allowed margin trading, arbitrage was impossible because the exchanges are extremely risk avers

Others here are missing the point. Until platforms like Bitfinex allowed margin trading, arbitrage was impossible because the exchanges are extremely risk averse. In order to arbitrage you would have had to buy on one exchange, then wait for 3 confirmations (~40 minutes?) before the receiving exchange would take the risk that the bitcoin was actually transferred. Now with short selling it looks like you can instantly borrow a bitcoin on the exchange that's inflated, then sell it immediately. You don't need to transfer between exchanges - all done completely on internal paper transfers inside the exchange.

runeks 10y ago
> Now with short selling it looks like you can instantly borrow a bitcoin on the exchange that's inflated, then sell it immediately This sounds more like speculation than arbitrate. With arbitrage, you transfer liquidity from one exchange to another by having a short leg on the higher-price exchange and a long leg on the lower price one. This is great for Bitcoin because it evens out the price differences between the exchanges, and at the same time transfers the liquidity of one exchange to another one, while the arbitrageur makes a profit. I don't see how leveraged trading can replace this. Arbitrate is, essentially, taking orders from one exchange and selling them on another one, thereby matching a buyer and a seller on separate exchanges. It's a genuine service to the market.
- neximo64 10y ago
  Leverage does the same because the counter-party wouldn't be able to tell the difference on whether you used your own or borrowed bitcoin and hence the effect is the same.
  - runeks 10y ago
    I see your point now. I guess it all comes down to whether the arbitrageur is willing to take the risk of not being able to cash out bitcoins on the leveraged exchange. Leverage certainly increases the risk of not being able to withdraw, and often when you need it the most.
Buge 10y ago
I don't see how confirmations come into it. To arbitrage between exchanges, you own some bitcoins and dollars (or other national currency) in both exchanges. Then when an arbitrage opportunity arrives, you sell on the high one and buy on the low one. If long term your accounts are unbalanced, you can withdraw/deposit, but speed isn't required for that.
- elastic_church 10y ago
  People weren't doing that because they weren't capitalized or there were barriers to becoming capitalized in the other country. Like there was no way to send national currency to the exchange in the other country because you couldn't get a bank account in the other country. But it was possible to send bitcoin to the exchange in the other country. So people would create a routine circuit where they have dollars, buy bitcoin on US exchange. Send bitcoin to foreign exchange, sell bitcoin for that national currency (sometimes dollars). If possible, that exchange would allow wiring out, back to the user's real bank account. In other cases that exchange would have a bitcoin or national currency market of another cryptocurrency, like litecoin, where an arbitrage opportunity MIGHT still persist. The litecoin would be moved and liquidated back on a US exchange. Got to calculate it yourself and figure out why the arbitrage opportunity is still there. Usually there's a good reason. Sometimes there's a good reason that you are exempt from, and in those moments you borrow as much as a can get your hands on and make 5% profits as much as possible.
Itsdijital 10y ago
If you can immediately buy and sell between exchanges it should quickly level the prices. Something like that is easy to automate, so any slight margin that appears will be almost instantly leveled.
- gedrap 10y ago
  I guess that's where the 'high speed' bit comes in? It's almost instant, not completely instant :)
- atemerev 10y ago
  Everybody is talking on how easy it is, until they really tried. ;)
- ProblemFactory 10y ago
  The buying and selling is fast and easy to automate. The difficult part is in transferring non-bitcoin currency to and from the exchanges. If you for example buy bitcoin in the US and sell in China, then you end up with a surplus of CNY on a Chinese exchange's account. Getting this converted and transferred back to the US will incur exchange and transfer fees. The transfers might also take weeks - which will limit you to cycling small amounts of money slowly, or risking a lot of money at once if the exchange "has banking issues". In the end, even a 5% or 10% price difference might not be worth running the arbitrage cycle on difficult to deal with exchanges in strange countries.
  - gcb0 10y ago
    the article is about doing this on a dozen chinese exchanges. no currency conversion necessary when it is all CNY
sschueller 10y ago
Exactly, I have been doing bitcoin arbitrage for a while with https://github.com/butor/blackbird/ https://github.com/butor/blackbird/ . The project seems to have gotten some more attention recently for what ever reason.
- thinkloop 10y ago
  Looks nice, why dilute your arbitrage? :-)
kosmos1337 10y ago
I came to the comment section to find out exactly how were they getting over the confirmation time, and I was not disappointed. Thank you greenleafjacob. The article should have mentioned this.
_yosefk 10y ago
Short-selling? Where's patio11? He said he badly wanted to short BTC, all that was lacking is a mechanism.
- Avalaxy 10y ago
  Going short has been possible for many years.
  - ForHackernews 10y ago
    How/where?
    - nosho 10y ago
      bitmex.com is my favorite.
    - vkou 10y ago
      Bitfinex. Until it, ah, got 'hacked.'
- notahacker 10y ago
  Any self-respecting BTC bear isn't going to short on an unregulated platform run by people heavily invested in BTC being a success and expect to see their margin again or get paid out on their contract if they're right. I mean, it's not as if exchanges have a good track record of not losing/stealing customers' money when BTC is doing well.
  - voidz 10y ago
    You appear to be arguing false causes from which you draw irrelevant conclusions. Firstly, the reality is that other people (lenders), rather than exchanges, are lending out their money, for a certain amount of interest. Exchanges have nothing to lose. Quite the opposite: they earn regardless of whether longs and shorts are successful or not. Take Poloniex as example: they collect a 15% premium on interest earnings. This is of course next to the premium they collect in the form of regular trading fees. In nearly all cases this means that lenders don't lose money. Borrowers do because they pay interest. This is why you can only borrow after you allocate collateral, which is used to pay for said interest, and to collect profits, cover losses, and for forced liquidation in the case that the borrower's trades are about to lose more value than is covered by their collateral. This applies to shorts and longs. The only chance this becomes problematic for an exchange, I think, is when a forced liquidation does not cover all of the losses and some debt stays open. In this case either the lender does not receive the right amount of interest, or, what makes more sense to me, is that the exchange will cover the debt and try to claim it back from the liquidated borrower. Secondly there are a good number of exchanges that do have very decent track records and aren't as scammy as you claim. There were a few scammers out there, I'll grant you that - companies like Cryptsy and of course MtGox just stole incredible sums of money. And yes, this can happen again with other exchanges. Be that as it may, this still does not have anything to do with the possibility of shorting in particular.
deleted 10y ago
[deleted]
_spoonman 10y ago
I posted about this exact issue just now, sorry did not mean to repeat your idea.
speeder 10y ago
I was one of the first people to do inter exchange arbitrage. It ins't necessary extreme speed, in fact for me it took more than a month to settle. I would first wait my program notify me there was a 20% or more profit opportunity (due to the slowness and risk). Then I would buy btc with credit card on some usd exchange (usually mtgox, not always), then I would sell btc for brl on a Brazillian exchange. I would pay the credit card with my brl when the bill came... this could take more than a month, and I would pay lots of taxes, but I would still turn a profit. The reason I stopped doing arbitrage was that to me was too time consuming, because every month the payment methods would change (for example someone one month accepted paypal, then only cc directly, then only paypal again, then some paypal competitor where I had to register...)
speeder 10y ago
I was one of the first people to do inter exchange arbitrage. It ins't necessary extreme speed, in fact for me it took more than a month to settle. I would first wait my program notify me there was a 20% or more profit opportunity (due to the slowness and risk). Then I would buy btc with credit card on some usd exchange (usually mtgox, not always), then I would sell btc for brl on a Brazillian exchange. I would pay the credit card with my brl when the bill came... this could take more than a month, and I would pay lots of taxes, but I would still turn a profit. The reason I stopped doing arbitrage was that to me was too time consuming, because every month the payment methods would change (for example someone one month accepted paypal, then only cc directly, then only paypal again, then some paypal competitor where I had to register...)

runeks 10y ago

> Now with short selling it looks like you can instantly borrow a bitcoin on the exchange that's inflated, then sell it immediately This sounds more like speculation than arbitrate. With arbitrage, you transfer liquidity from one exchange to another by having a short leg on the higher-price exchange and a long leg on the lower price one. This is great for Bitcoin because it evens out the price differences between the exchanges, and at the same time transfers the liquidity of one exchange to another one, while the arbitrageur makes a profit. I don't see how leveraged trading can replace this. Arbitrate is, essentially, taking orders from one exchange and selling them on another one, thereby matching a buyer and a seller on separate exchanges. It's a genuine service to the market.

neximo64 10y ago
Leverage does the same because the counter-party wouldn't be able to tell the difference on whether you used your own or borrowed bitcoin and hence the effect is the same.
- runeks 10y ago
  I see your point now. I guess it all comes down to whether the arbitrageur is willing to take the risk of not being able to cash out bitcoins on the leveraged exchange. Leverage certainly increases the risk of not being able to withdraw, and often when you need it the most.

Buge 10y ago

I don't see how confirmations come into it. To arbitrage between exchanges, you own some bitcoins and dollars (or other national currency) in both exchanges. Then when an arbitrage opportunity arrives, you sell on the high one and buy on the low one. If long term your accounts are unbalanced, you can withdraw/deposit, but speed isn't required for that.

elastic_church 10y ago
People weren't doing that because they weren't capitalized or there were barriers to becoming capitalized in the other country. Like there was no way to send national currency to the exchange in the other country because you couldn't get a bank account in the other country. But it was possible to send bitcoin to the exchange in the other country. So people would create a routine circuit where they have dollars, buy bitcoin on US exchange. Send bitcoin to foreign exchange, sell bitcoin for that national currency (sometimes dollars). If possible, that exchange would allow wiring out, back to the user's real bank account. In other cases that exchange would have a bitcoin or national currency market of another cryptocurrency, like litecoin, where an arbitrage opportunity MIGHT still persist. The litecoin would be moved and liquidated back on a US exchange. Got to calculate it yourself and figure out why the arbitrage opportunity is still there. Usually there's a good reason. Sometimes there's a good reason that you are exempt from, and in those moments you borrow as much as a can get your hands on and make 5% profits as much as possible.

Itsdijital 10y ago

If you can immediately buy and sell between exchanges it should quickly level the prices. Something like that is easy to automate, so any slight margin that appears will be almost instantly leveled.

gedrap 10y ago
I guess that's where the 'high speed' bit comes in? It's almost instant, not completely instant :)
atemerev 10y ago
Everybody is talking on how easy it is, until they really tried. ;)
ProblemFactory 10y ago
The buying and selling is fast and easy to automate. The difficult part is in transferring non-bitcoin currency to and from the exchanges. If you for example buy bitcoin in the US and sell in China, then you end up with a surplus of CNY on a Chinese exchange's account. Getting this converted and transferred back to the US will incur exchange and transfer fees. The transfers might also take weeks - which will limit you to cycling small amounts of money slowly, or risking a lot of money at once if the exchange "has banking issues". In the end, even a 5% or 10% price difference might not be worth running the arbitrage cycle on difficult to deal with exchanges in strange countries.
- gcb0 10y ago
  the article is about doing this on a dozen chinese exchanges. no currency conversion necessary when it is all CNY

sschueller 10y ago

Exactly, I have been doing bitcoin arbitrage for a while with https://github.com/butor/blackbird/ https://github.com/butor/blackbird/ . The project seems to have gotten some more attention recently for what ever reason.

thinkloop 10y ago
Looks nice, why dilute your arbitrage? :-)

kosmos1337 10y ago

I came to the comment section to find out exactly how were they getting over the confirmation time, and I was not disappointed. Thank you greenleafjacob. The article should have mentioned this.

_yosefk 10y ago

Short-selling? Where's patio11? He said he badly wanted to short BTC, all that was lacking is a mechanism.

Avalaxy 10y ago
Going short has been possible for many years.
- ForHackernews 10y ago
  How/where?
  - nosho 10y ago
    bitmex.com is my favorite.
  - vkou 10y ago
    Bitfinex. Until it, ah, got 'hacked.'
notahacker 10y ago
Any self-respecting BTC bear isn't going to short on an unregulated platform run by people heavily invested in BTC being a success and expect to see their margin again or get paid out on their contract if they're right. I mean, it's not as if exchanges have a good track record of not losing/stealing customers' money when BTC is doing well.
- voidz 10y ago
  You appear to be arguing false causes from which you draw irrelevant conclusions. Firstly, the reality is that other people (lenders), rather than exchanges, are lending out their money, for a certain amount of interest. Exchanges have nothing to lose. Quite the opposite: they earn regardless of whether longs and shorts are successful or not. Take Poloniex as example: they collect a 15% premium on interest earnings. This is of course next to the premium they collect in the form of regular trading fees. In nearly all cases this means that lenders don't lose money. Borrowers do because they pay interest. This is why you can only borrow after you allocate collateral, which is used to pay for said interest, and to collect profits, cover losses, and for forced liquidation in the case that the borrower's trades are about to lose more value than is covered by their collateral. This applies to shorts and longs. The only chance this becomes problematic for an exchange, I think, is when a forced liquidation does not cover all of the losses and some debt stays open. In this case either the lender does not receive the right amount of interest, or, what makes more sense to me, is that the exchange will cover the debt and try to claim it back from the liquidated borrower. Secondly there are a good number of exchanges that do have very decent track records and aren't as scammy as you claim. There were a few scammers out there, I'll grant you that - companies like Cryptsy and of course MtGox just stole incredible sums of money. And yes, this can happen again with other exchanges. Be that as it may, this still does not have anything to do with the possibility of shorting in particular.

deleted 10y ago

[deleted]

_spoonman 10y ago

I posted about this exact issue just now, sorry did not mean to repeat your idea.

speeder 10y ago

I was one of the first people to do inter exchange arbitrage. It ins't necessary extreme speed, in fact for me it took more than a month to settle. I would first wait my program notify me there was a 20% or more profit opportunity (due to the slowness and risk). Then I would buy btc with credit card on some usd exchange (usually mtgox, not always), then I would sell btc for brl on a Brazillian exchange. I would pay the credit card with my brl when the bill came... this could take more than a month, and I would pay lots of taxes, but I would still turn a profit. The reason I stopped doing arbitrage was that to me was too time consuming, because every month the payment methods would change (for example someone one month accepted paypal, then only cc directly, then only paypal again, then some paypal competitor where I had to register...)

speeder 10y ago