6 ms·

Why don't people buy Bitcoin at one exchange and sell at another?

38 points by DanielRibeiro 13y ago

foo298423842 13y ago
I'm certain people do. It's called arbitrage.
drakaal 13y ago
The lag is too high. Rarely can you buy coins, get them transferred in to your wallet, transfer them in to the new exchange and sell them before the price has changed. One of the biggest problems with Bit Coin is the delay. 5 minutes to move money between wallets is not uncommon. If you want to pay me, so I can pay the waitress we need 10 minutes. Doing a check out at the grocery store that takes 5 minutes is not going to go over well with the masses. Figuring out how to make the markets more fluid will likely be the biggest challenge for BTC, after is solves its issues with having huge swings in price such that everything in the grocery store would have to be retagged every hour to make pricing work. :-)
- damian2000 13y ago
  But the difference in the BTC price between MtGox and Bitstamp has been staying at USD50+ for days at a time recently (right now its USD 130). What does a lag time of 10 mins have to do with it?
  - drakaal 13y ago
    At $1,000 a coin and 2.5% on each service (which would be cheap) you'd have 5% total. That's $50 in fees. At $130 it would be a good deal, but not at $50
- Aqueous 13y ago
  All you have to do is keep some money in USD and BitCoin in reserve on all the exchanges. That way you can buy some BitCoin on one exchange and then sell the same amount on the other at the same time, and then transfer over at your convenience.
  - wmf 13y ago
    The imbalance is not random; MtGox always has a higher price so your money would be flowing in one direction and you'd end up with all your money in MtGox USD that's very difficult to access.
    - Aqueous 13y ago
      It goes in both directions. If you are running low on USD at BitStamp, you just deposit money there (assuming deposits take an acceptable amount of time) and withdraw the same amount from Mt. Gox (which might take a while). You still made money. Are you looking for a never-ending money cycle? You are creating a cyclical process of arbitrage. If arbitrage traders have large enough reserves they should be able to pretty consistently close the gaps, which means your opportunities will be few and far between anyway, giving you plenty of time to prepare. When buying and selling BitCoin becomes more fluid, that is.
      - wmf 13y ago
        There's no cycle if you can't withdraw USD from MtGox at all.
        Aqueous 13y ago
        Well MtGox clearly has a problem with USD withdrawals, which is why this arbitrage opportunity exists in the first place and doesn't seem to be closing. If they fix the USD withdrawal problem, which I suspect they will do as they start to lose business to the other, better exchanges, expect arbitrage to obliterate the price difference between MtGox and other exchanges.
  - drakaal 13y ago
    If you had a good probability of both exchanges having equal amounts of high and low, you would be right, but if you have to always go in one direction then this "buffer" won't work.
    - 13y ago
- Jach 13y ago
  Where's this 5-10 minute wait for groceries or restaurants coming from? If you're talking about waiting for your transaction to be included in the next block, it could even take longer than that by chance. Those restaurant merchants should just accept on the incoming notice which is very quick. There are precautions a merchant can take to make a race attack double-spend harder, but most people are honest and the threat is similar to a person dining and dashing. For large transactions, sure, wait at least 1 confirm and preferably 6 or more, but for a $20 or less meal? If you want to bust them you have the timestamp of the bad transaction, and you can look at your security camera logs.
  - drakaal 13y ago
    If all this were true we wouldn't run Credit cards immediately. You'd swipe, and store, and process in bulk later which makes the transactions cheaper to run. Most merchant services accounts you can save about 50% if you process daily batches rather than authorizing each transaction instantly.
    - Jach 13y ago
      Sounds like a profitable venture for a bitcoin processing company, then. Merchant pays some sort of fee, company promises to eat any double-spends that happen due to accepting on 0 confirms. In fact BitPay already does this for over 12 thousand companies...
iLoch 13y ago
The topic of arbitrage comes up quite frequently in Bitcoin discussions; it's a good question and the answer is fairly straight forward. There aren't many choices for exchanges with a reasonable amount of transaction volume. Most people flock to these exchanges because they're well known, trusted, and you can trade large volume. The problem with these exchanges is their popularity - everyone using them means longer waits for transactions to be processed. In order to perform arbitrage effectively you need to be able to trade quickly. Any semi sane person will realize the risk in trading with 5 minutes lag, nevermind two weeks. The gain isn't worth the risk.
damian2000 13y ago
One reason not mentioned here is that its probably more attractive right now (with the upward price movement) to just buy and hold Bitcoin rather than take the arbitrage and cash out on another exchange.
fat0wl 13y ago
so the currency with "no transaction fees" avoids the free-market implications of arbitrage that would prevent price-fixing..... through the serendipity of two-way transaction fees?
nl 13y ago
More interestingly: Is anyone doing BTX<->Litecoin arbitrage?
aosmith 13y ago
Let's just be crystal clear about this, people are doing it. The prices would be vastly different if they were not. This route could be direct or indirect, but it's happening none the less. At this point you won't get any money out of Mt. Gox unless you have a JP bank account, which requires physical presence there.
randartie 13y ago
It's not possible today because the infrastructure just isn't there. You'll experience trading lag which is just too risky and it offsets the profits. Also, getting money off an exchange takes forever. Someone organized a fund on bitcointalk which tried to arbitrage prices on mt.gox and bt-china (This is cumbersome because you need physical presence in china to be part of bt-china). It sounded promising but it failed and everyone had to be refunded. https://bitcointalk.org/index.php?topic=330209.0 https://bitcointalk.org/index.php?topic=330209.0 In fact, the reason the BTC price on Mt.Gox is so high is because you can't get your money off there in a reasonable amount of time. This means that to get your money off of Mt.Gox you do not send a sell order to convert to USD, you instead transfer the BTC to an external wallet and sell it elsewhere. This leads to more buy orders than sell orders on Mt.gox (leading to higher BTC/USD prices).
nutate 13y ago
Well 404 people starred this github repo that does it... https://github.com/maxme/bitcoin-arbitrage https://github.com/maxme/bitcoin-arbitrage I added campbx support to a pull I did and tried it out a while back. It was kinda cool. So yeah, you can do it. The problem is, unless you have limitless liquid $$$ at both exchanges you're probably going to hit bottom on one of them sooner or later. At that point you're talking time and fees before you can get more cash in.
downandout 13y ago
You can easily buy at BTC-E and sell at Coinbase for a profit. The spread between the two is routinely high enough to limit the price fluctuation risk to acceptable levels these days.

38 points by DanielRibeiro 13y ago

I'm certain people do. It's called arbitrage.

The lag is too high. Rarely can you buy coins, get them transferred in to your wallet, transfer them in to the new exchange and sell them before the price has changed. One of the biggest problems with Bit Coin is the delay. 5 minutes to move money between wallets is not uncommon. If you want to pay me, so I can pay the waitress we need 10 minutes. Doing a check out at the grocery store that takes 5 minutes is not going to go over well with the masses. Figuring out how to make the markets more fluid will likely be the biggest challenge for BTC, after is solves its issues with having huge swings in price such that everything in the grocery store would have to be retagged every hour to make pricing work. :-)

damian2000 13y ago
But the difference in the BTC price between MtGox and Bitstamp has been staying at USD50+ for days at a time recently (right now its USD 130). What does a lag time of 10 mins have to do with it?
- drakaal 13y ago
  At $1,000 a coin and 2.5% on each service (which would be cheap) you'd have 5% total. That's $50 in fees. At $130 it would be a good deal, but not at $50
Aqueous 13y ago
All you have to do is keep some money in USD and BitCoin in reserve on all the exchanges. That way you can buy some BitCoin on one exchange and then sell the same amount on the other at the same time, and then transfer over at your convenience.
- wmf 13y ago
  The imbalance is not random; MtGox always has a higher price so your money would be flowing in one direction and you'd end up with all your money in MtGox USD that's very difficult to access.
  - Aqueous 13y ago
    It goes in both directions. If you are running low on USD at BitStamp, you just deposit money there (assuming deposits take an acceptable amount of time) and withdraw the same amount from Mt. Gox (which might take a while). You still made money. Are you looking for a never-ending money cycle? You are creating a cyclical process of arbitrage. If arbitrage traders have large enough reserves they should be able to pretty consistently close the gaps, which means your opportunities will be few and far between anyway, giving you plenty of time to prepare. When buying and selling BitCoin becomes more fluid, that is.
    - wmf 13y ago
      There's no cycle if you can't withdraw USD from MtGox at all.
      - Aqueous 13y ago
        Well MtGox clearly has a problem with USD withdrawals, which is why this arbitrage opportunity exists in the first place and doesn't seem to be closing. If they fix the USD withdrawal problem, which I suspect they will do as they start to lose business to the other, better exchanges, expect arbitrage to obliterate the price difference between MtGox and other exchanges.
- drakaal 13y ago
  If you had a good probability of both exchanges having equal amounts of high and low, you would be right, but if you have to always go in one direction then this "buffer" won't work.
  - 13y ago
Jach 13y ago
Where's this 5-10 minute wait for groceries or restaurants coming from? If you're talking about waiting for your transaction to be included in the next block, it could even take longer than that by chance. Those restaurant merchants should just accept on the incoming notice which is very quick. There are precautions a merchant can take to make a race attack double-spend harder, but most people are honest and the threat is similar to a person dining and dashing. For large transactions, sure, wait at least 1 confirm and preferably 6 or more, but for a $20 or less meal? If you want to bust them you have the timestamp of the bad transaction, and you can look at your security camera logs.
- drakaal 13y ago
  If all this were true we wouldn't run Credit cards immediately. You'd swipe, and store, and process in bulk later which makes the transactions cheaper to run. Most merchant services accounts you can save about 50% if you process daily batches rather than authorizing each transaction instantly.
  - Jach 13y ago
    Sounds like a profitable venture for a bitcoin processing company, then. Merchant pays some sort of fee, company promises to eat any double-spends that happen due to accepting on 0 confirms. In fact BitPay already does this for over 12 thousand companies...

iLoch 13y ago

The topic of arbitrage comes up quite frequently in Bitcoin discussions; it's a good question and the answer is fairly straight forward. There aren't many choices for exchanges with a reasonable amount of transaction volume. Most people flock to these exchanges because they're well known, trusted, and you can trade large volume. The problem with these exchanges is their popularity - everyone using them means longer waits for transactions to be processed. In order to perform arbitrage effectively you need to be able to trade quickly. Any semi sane person will realize the risk in trading with 5 minutes lag, nevermind two weeks. The gain isn't worth the risk.

damian2000 13y ago

One reason not mentioned here is that its probably more attractive right now (with the upward price movement) to just buy and hold Bitcoin rather than take the arbitrage and cash out on another exchange.

fat0wl 13y ago

so the currency with "no transaction fees" avoids the free-market implications of arbitrage that would prevent price-fixing..... through the serendipity of two-way transaction fees?

nl 13y ago

More interestingly: Is anyone doing BTX<->Litecoin arbitrage?

aosmith 13y ago

Let's just be crystal clear about this, people are doing it. The prices would be vastly different if they were not. This route could be direct or indirect, but it's happening none the less. At this point you won't get any money out of Mt. Gox unless you have a JP bank account, which requires physical presence there.

randartie 13y ago

It's not possible today because the infrastructure just isn't there. You'll experience trading lag which is just too risky and it offsets the profits. Also, getting money off an exchange takes forever. Someone organized a fund on bitcointalk which tried to arbitrage prices on mt.gox and bt-china (This is cumbersome because you need physical presence in china to be part of bt-china). It sounded promising but it failed and everyone had to be refunded. https://bitcointalk.org/index.php?topic=330209.0 https://bitcointalk.org/index.php?topic=330209.0 In fact, the reason the BTC price on Mt.Gox is so high is because you can't get your money off there in a reasonable amount of time. This means that to get your money off of Mt.Gox you do not send a sell order to convert to USD, you instead transfer the BTC to an external wallet and sell it elsewhere. This leads to more buy orders than sell orders on Mt.gox (leading to higher BTC/USD prices).

nutate 13y ago

Well 404 people starred this github repo that does it... https://github.com/maxme/bitcoin-arbitrage https://github.com/maxme/bitcoin-arbitrage I added campbx support to a pull I did and tried it out a while back. It was kinda cool. So yeah, you can do it. The problem is, unless you have limitless liquid $$$ at both exchanges you're probably going to hit bottom on one of them sooner or later. At that point you're talking time and fees before you can get more cash in.

downandout 13y ago

You can easily buy at BTC-E and sell at Coinbase for a profit. The spread between the two is routinely high enough to limit the price fluctuation risk to acceptable levels these days.