4 ms·

If it can flip, it’s not really an arbitrage, but a bet that you’ll be able to exit the trade before it does flip or borrow costs kill you.

vba616 4y ago
If it's a permanent profit source, then it can't be an arbitrage either, can it? If two things are theoretically supposed to be the same, and they never converge, then the claim that they are the same seems dubious.
- freeone3000 4y ago
  They're not the same. GBTC traded at a premium because custodianship of bitcoin is a service which could provide value. Currently the consensus view is that this value is negative -- maybe people don't trust GBTC in particular, maybe people don't want to trade a BTC derivative on regulated markets, maybe custodianship isn't worth as much as they're charging after all. But it's not exactly the same product, the same as a cash settled silver futures contract and holding silver in your basement are not the same product.
  - vba616 4y ago
    It's obvious it's not exactly the same product. The definition of arbitrage is what's not mutually understood. Like the "is Pluto a planet" argument. Say that your position is that only arbitraging between GBTC and GBTC on different exchanges is really arbitrage. Well, what if that doesn't converge? There has to be a difference in the first place, and some uncertainty. So if "exactly the same product" doesn't converge, then you can say that it isn't exactly the same after all. Which means that the definition of "same", however you choose, must be a bit arbitrary. Definitions are arbitrary, but I think there are objectively bad definitions, which are so flexible that they can include or exclude everything or that definitely do include or exclude everything.
    - vgatherps 4y ago
      > Say that your position is that only arbitraging between GBTC and GBTC on different exchanges is really arbitrage. Well, what if that doesn't converge? There has to be a difference in the first place, and some uncertainty. Assuming exchange withdrawals and deposits are open (and putting aside that you technically have a claim to withdraw, not a coin in your own wallet), it doesn't matter what happens to the price gap because you withdraw the coin that you purchased and deposit to close your short. When a crypto exchange has withdrawal/deposit issues, you do see prices on that exchange start diverging, because coin X on said exchange stops being fungible with the rest of the world.
- vgatherps 4y ago
  > If it's a permanent profit source, then it can't be an arbitrage either, can it I think you misread me? My claim is that the Gbtc trade Carrie’s plenty of risk, much then anything that would be appropriately described as an arbitrage. You’re exactly right about arbitrages, which is why arbitrages tend to go away very fast and/or are extremely competitive (latency arbitrage is an example). Gbtc redemption was somewhere between difficult to impossible over history, so it’s not really an arbitrage in the same way that an etf and its constituents are. You have an implied bet that you’ll be able to sell the gbtc at an even higher premium or eventually redeem it at some premium that makes borrow costs worthwhile. Neither of these are risk free and borrow is very expensive, many firms learned this the hard way
- csomar 4y ago
  > If it's a permanent profit source, then it can't be an arbitrage either, can it? If two things are theoretically supposed to be the same, and they never converge, then the claim that they are the same seems dubious. Sure the arbitrage can remain indefinitely. Everything is an arbitrage. A company is buying people's time and selling a product. They are basically engaged in a sophisticated arbitrage. Financial arbitrage in open market are short-lived because deep pocketed investors can quickly close the gap. The arbitrage might be still there but it's not visible to the average guy. (There is a lot of arbitrage going on in Crypto exchanges; however, it's quickly collected by big boys bots; but that doesn't mean the arb doesn't exist).

vba616 4y ago

If it's a permanent profit source, then it can't be an arbitrage either, can it? If two things are theoretically supposed to be the same, and they never converge, then the claim that they are the same seems dubious.

freeone3000 4y ago
They're not the same. GBTC traded at a premium because custodianship of bitcoin is a service which could provide value. Currently the consensus view is that this value is negative -- maybe people don't trust GBTC in particular, maybe people don't want to trade a BTC derivative on regulated markets, maybe custodianship isn't worth as much as they're charging after all. But it's not exactly the same product, the same as a cash settled silver futures contract and holding silver in your basement are not the same product.
- vba616 4y ago
  It's obvious it's not exactly the same product. The definition of arbitrage is what's not mutually understood. Like the "is Pluto a planet" argument. Say that your position is that only arbitraging between GBTC and GBTC on different exchanges is really arbitrage. Well, what if that doesn't converge? There has to be a difference in the first place, and some uncertainty. So if "exactly the same product" doesn't converge, then you can say that it isn't exactly the same after all. Which means that the definition of "same", however you choose, must be a bit arbitrary. Definitions are arbitrary, but I think there are objectively bad definitions, which are so flexible that they can include or exclude everything or that definitely do include or exclude everything.
  - vgatherps 4y ago
    > Say that your position is that only arbitraging between GBTC and GBTC on different exchanges is really arbitrage. Well, what if that doesn't converge? There has to be a difference in the first place, and some uncertainty. Assuming exchange withdrawals and deposits are open (and putting aside that you technically have a claim to withdraw, not a coin in your own wallet), it doesn't matter what happens to the price gap because you withdraw the coin that you purchased and deposit to close your short. When a crypto exchange has withdrawal/deposit issues, you do see prices on that exchange start diverging, because coin X on said exchange stops being fungible with the rest of the world.
vgatherps 4y ago
> If it's a permanent profit source, then it can't be an arbitrage either, can it I think you misread me? My claim is that the Gbtc trade Carrie’s plenty of risk, much then anything that would be appropriately described as an arbitrage. You’re exactly right about arbitrages, which is why arbitrages tend to go away very fast and/or are extremely competitive (latency arbitrage is an example). Gbtc redemption was somewhere between difficult to impossible over history, so it’s not really an arbitrage in the same way that an etf and its constituents are. You have an implied bet that you’ll be able to sell the gbtc at an even higher premium or eventually redeem it at some premium that makes borrow costs worthwhile. Neither of these are risk free and borrow is very expensive, many firms learned this the hard way
csomar 4y ago
> If it's a permanent profit source, then it can't be an arbitrage either, can it? If two things are theoretically supposed to be the same, and they never converge, then the claim that they are the same seems dubious. Sure the arbitrage can remain indefinitely. Everything is an arbitrage. A company is buying people's time and selling a product. They are basically engaged in a sophisticated arbitrage. Financial arbitrage in open market are short-lived because deep pocketed investors can quickly close the gap. The arbitrage might be still there but it's not visible to the average guy. (There is a lot of arbitrage going on in Crypto exchanges; however, it's quickly collected by big boys bots; but that doesn't mean the arb doesn't exist).