Unbank yourself and flourish during retirement. Subscribe Here! >
Note: This is an advanced method of earning income from crypto. If you’re new to crypto, I recommend you keep reading only for interest. Or, even better, skip it for now and focus on earning interest on your crypto holdings.
Arbitrage: The simultaneous purchase and sale of equivalent assets or of the same asset in multiple markets in order to exploit a temporary discrepancy in prices.
– Merle D. Faminow and Bruce L. Benson
Sounds esoteric, doesn’t it? For some traders and speculators in currencies and on stock markets, arbitrage is a substantial source of income.
It can also provide income in the world of crypto, if you have a lot of money you can throw at it.
Before getting into the how-to, a recommendation. Don’t get into crypto arbitrage unless you have money you can afford to lose.
And don’t get into it unless you have enough “spare” money to leave a few thousand dollars parked on various crypto exchanges.
Note: Please keep in mind that, unlike the banking system, any funds you keep on a crypto exchange are at risk. The exchange could be hacked and drained of millions, possibly billions, of dollars.
Or your computer could be hacked, and the hacker could gain access to your exchange account, quickly transferring all your crypto holdings out of your account.
The only way to keep your crypto 100% secure is to keep it in a hardware wallet, also called a cold wallet. The next best thing is a platform where you can lock up all your assets for at least 24 hours.
If you do either of those, arbitrage becomes almost impossible, since it requires immediate action to take advantage of those price discrepancies mentioned above.
If you want to earn any kind of serious income from arbitrage, you’ll need to keep at least $5,000 on each exchange. $10,000 or more would be better. You’ll want to keep some of it in a stablecoin, or perhaps two.
You could, however, play the game on just one exchange. You’ll occasionally find a difference in the price of, say, the Bitcoin (BTC) / USDC pair compared to the BTC / USDT (Tether) pair.
For example, you may see the BTC price listed as $42,273 in USDC and $42,123 on Tether. If you were holding BTC in USDC, you would sell that BTC.
Then use the Tether you already hold to buy BTC at the lower price.
Your income would be just over $150 (on an entire Bitcoin). If you only had $10,000 on the exchange, your income would be in the range of $17.50.
Why so little? Because you’d need to split the $10K between the BTC-USDC pair and the BTC-Tether pair. So the most you could sell and then buy would be $5,000 in Bitcoin, or just a bit under 20% of the price of Bitcoin.
And the discussion above doesn’t take into account the fees you’ll pay. Transactions on exchanges are usually low. You still need to take them into account when toting up your earnings.
Here you’re entering into the realm of day trading, with all the stress, and money-losing opportunities, that go with it.
You’ll need to have two browser windows open side by side on your computer screen (you’ll need a large monitor!).
You’ll also need to keep active in both exchanges, as most exchanges will log you out after a certain amount of inactivity. This is to keep your account secure.
It likely won’t be much of a hardship though, as you’ll be actively looking for trading pairs with price discrepancies between the two exchanges.
If you’re trading with a small amount (less than about $25,000), you’ll need to focus on trading pairs where you already have some of your funds invested. For example, you already hold some BTC on Exchange A, and hold a stablecoin on Exchange B.
When you find a discrepancy you can pounce on, you trade the BTC at market prices (you need to act quickly, so you need to buy at the market price) into a stablecoin on Exchange A and buy BTC on Exchange B using the stablecoin parked there.
You pocket the difference (minus fees).
If you used all of your funds on that trade, you’ll then need to look for a trade in the other direction, from B to A.
If you add in a third exchange, the work involved in finding and taking advantage of price discrepancies grows exponentially.
If you really, really want to use arbitrage to grow your crypto income, the only practical way to do it is with an algorithm that finds the trading opportunities and then makes the trades for you.
Known as crypto arbitrage bots, these tools can be worth their price, if you plan to use arbitrage as a significant source of income.
I’ve never used an arbitrage bot, so I can’t recommend any. Do a search for “crypto arbitrage bot” or “cryptocurrency trading bot” to find review pages.
Keep in mind, though, that most of those reviewers are affiliates of the products they review, so they earn a commission if you buy.
There’s nothing wrong with that, as long as they provide you with honest reviews.
The affiliate marketing world is rife with people giving great reviews for products and services that aren’t worth the purchase price, simply because the commission they earn is high.
If you have the funds (in the neighborhood of $100,000 USD), you might want to consider DEFiBot, although I do not recommend it.
DEFiBot trades only on decentralized exchanges (DEXes) for a particular coin or token. For example, you can trade on Ethereum DEXes, or on Polygon DEXes, or Avalanche DEXes. There are four other options as well.
DEFiBot is expensive. And you pay for access to just one of the coins/tokens, not all of them. So if you wanted to trade on DEXes for all seven networks, you’d need at least $500,000 USD in total crypto assets.
DEFiBot also takes 15% of your earnings (down to 5% if you buy the more expensive package and invest more crypto). And it requires the private key to your wallet, something you should never, ever give to anyone, as that person then has access to all of your funds in that wallet.
So unless you trust the DEFiBot team with $50,000 or more of your crypto, I recommend staying away from it, until you start to see some legitimate social proof (testimonials) on its website.
In short, as a reader of CryptoRetirees.com, probably not. However, you may be the outlier. If so, carefully consider the various bots, choose the one you want to use, and become an arbitrageur. Best wishes on your new profession!
At this stage in my crypto “career,” I’m looking for more “set it and forget it” income. That’s why I stick mostly to collecting rewards (interest) from Freeway.
Click here to learn more about Freeway, and how you can start earning 200-430X more than you will in a bank savings account. That’s right. You’ll earn at least 20% on your assets with Freeway.