Altcoin arbitrage with your spare bitcoin
Last update: March 14, 2016
- Spare coins shouldn’t just sit somewhere:
Which exchanges have liquid altcoin markets and which have better charts
Altcoin Wallets - where to keep your altcoins
- What to read - There’s couple of good subreddits around.
Looking at Bitcoin charts thinking it’s too peaceful here? Let’s start the flame war then. If you have some spare Bitcoin you can either lend them or you can start trading altcoins. If you pick an altcoin that is traded a lot and swings a lot, you will be able to arbitrage-trade it and cash in Bitcoin (or fiat).
We have all been very lazy about this but the Bible says we shouldn’t be leaving money on the table like this. (I am not kidding about the Bible). So let’s take a look what is there to do with a couple of Bitcoins that would otherwise sit in your wallet earning nothing.
Even if it is not altcoin arbitrage directly, if your point with altcoins is to get more Bitcoin, you can achieve that with lending too. Besides, you are financing mostly someone else’s altcoin trading/arbitrage.
Only briefly about lending here, for full article head over here.
You are pretty much guaranteed to get your funds back (there is always a risk of some idiotic scheme but it is not a big risk).
You set the interest yourself, the profit will be cut by about 15% by the exchange. Interest rates for lending out USD are between 0.1% and 0.5% per day. Rates for lending out BTC and LTC are very low, 0.005% per day is “normal”. (From Finex Wiki)
Your loans are processed automatically, the system will get your money to anyone who places an offer with maximum interest above your interest rate.
If you are a bit experienced trader you might be better off altcoin trading but it’s up to you to decide. It’s your coins anyway.
Altcoins swing too
While it sometimes might come to the situation that Bitcoin price is stable for a week or so, not all altcoins follow that. It used to be like that but at some point by the end of 2015 altcoins started doing their own thing.
You can probably see general altcoin trading very risky though since (not only with ETH) such a subtle event like spamming users about ETH on Reddit can actually make people’s buying decisions. There is usually not really a lot of information available - people are fast to decide and the price is just as fast to swing.
Altcoin arbitrage is safer in this regard. The pumps and dumps may happen, you are only interested in differences between exchanges.
Differences between altcoin exchanges
Right now (March 2016) it looks like buying on Poloniex and selling on BitTrex is a good idea. Poloniex has a tad lower prices because of the number of traders. BitTrex has much smaller markets so the prices tend to be a little higher.
However, check it all yourself. Not all altcoins from Poloniex are also traded on BitTrex.
At the same time, the number of unfair case examples on behalf of either Poloniex and BitTrex has been quite low. (Of course, many people will still argue that any exchange that doesn’t require AML/KYC is not legit.)
You will be best off to check the altcoin differences on the fly. Keep in mind that altcoin markets are typically much smaller than Bitcoin markets.
BTCUSD market is relatively small, the bi-weekly pump and dump manipulations be proof of it.
Pump and dump: The price is stable, behaves in a predictable fashion. Then someone places a large market order to cause the slippage and drive the price higher.
Altcoin markets are even smaller and further divided among exchanges so be careful. Once certain people discover altcoin trading the market predictability and technical analysis will go south. Expect the unexpectable.
Sooner or later, if you want to stick at altcoin trading for some time, you will need to simply monitor price levels on the fly and actually sit at your computer to keep things in check.
There are a few ways to do that.
If you don’t mind trading from your phone you can set up API access to a few exchanges with zTrader or so. (Bitcoin Trading Basics / Mobile Trading). On zTrader not all currency pair are accesible as of now. It will most likely change as altcoin trading will get a little bit more mainstream. If you are not perfectly accustomed to trading from a phone it’s probably better if you only do this for fun.
Sign up for a desktop portfolio management. There is a freemium web app called Cryptfolio. It is free for up to 5 currencies (that is, 5 including fiat). You sign up with API keys pretty much as with mobile apps. This time you get much more trade-friendly interface though. Most importantly, you see all your accounts at one spot.
It seems Bitcoin exchanges are quite in favor of altcoin trading. Kraken just announced in their Newsletter they now have 0-conf instant cryptocurrency deposits from BitGo wallets. As most people who start trading altcoins come from Bitcoin trading background, not having to wait 40 minutes for 6 confirmations surely makes many things easier. On Kraken you can buy LTC, ETH and few other altcoins with fiat too, though.
Differences in price on BTC vs non-BTC markets
This is a clever type of arbitrage that is particularly fit for sideways days where you don’t know what to trade. Why risk a coin when you can arbitrage instead?
It must be said, you cannot do this kind of arbitrage on any exchange and it doesn’t always pay much.
What you do is look for a coin that recently changed price which means the price across two markets differs enough to make profit even though you pay fee for more trades.
You see that Poloniex states not only the coins price but also is percent change. Noticed Dash? The price went down faster on the Monero market than on the Bitcoin market. If you do the math you find out you profit from buying Monero, then buying Dash for Monero and then selling Dash for Bitcoin.
Drawback? Dash market is not very liquid. Before you flip all the trades market conditions might change.
Initial equity: 1 BTC Fee: 0.25% (taker) = 0.0025 (1 - FEE ) = 0.9975 Buy XMR: 0.9975 * 1/0.0026758 = 372.785708947 XMR Buy Dash with XMR: 0.9975 * 372.785708947 / 4.63886 = 80.160587876 DASH Sell Dash for BTC: 0.9975 * 80.160587876 * 0.01304027 = 1.04270242 BTC
~ Profit: 4.3% after fees. Not bad at all for a one-stop-shop.
Where to do cross-market altcoin arbitrage
Poloniex - big BTC and XMR markets
BleuTrade - BTC, DOGE and LTC market
Presumably C-CEX - BTC, DOGE and LTC market (untested)
Reasonably liquid altcoin markets
If you intend to trade altcoins your trades will be more fluent if you keep where others do so. There will also be more apps supporting your currency pairs and higher liquidity. There is another post on altcoin trading going more indepth., so let’s mention only a few most famous places:
If you are only into LTC out of all altcoins, the choice gets wider with Kraken, Bitfinex and Chinese exchanges. Check out the altcoin trading post. There typically is a price difference between Chinese and western exchanges.
All the mentioned exchanges are available on zTrader app (not all pairs though).
These are the absolutely most popular exchanges for altcoin trading. It doesn’t mean they are the best though, they are simply used by more people as of yet. New exchanges emerge often but as it always works with mass adoption, it is better to be first than to be better.
- HitBTC is new place with low volumes for cryptos but it might pull in more traders because of their fee system. HitBTC supports new smaller altcoins like Monero or Dash.
There was a rumor on Reddit they are not letting traders withdraw fiat. For altcoins though, nobody ever reported a problem.
As for strategy, arbitrage is always the same boring old stuff. Buying cheaper and selling dearer somewhere else at the same moment. The only thing left for you to decide is which coin is the base - the coin you want to earn.
Poloniex has the best liquidity, hands down. At the same time no verification is needed. You will only be able to trade crypto/crypto.
HitBTC has low volumes but since the market is so small, the prices will be different from what you typically see elsewhere. Worth checking it, at the very least.
As a reminder, HaasBot can be configured to help with the mundane tasks of arbitrage.
Either way, have fun.
It has been said many times that it’s not a good idea to keep your coins on an exchange if you are not using it for trading at the moment.
While there are many a wallet for Bitcoin, altcoin wallets are not so many. Here are a few hints.
A/If you don’t want to keep the altcoin you will still need to move the coins between exchanges. Don’t send money from exchange to exchange, send them to a intermediary wallet. If the altcoin will only come and go, you can use a browser wallet. It doesn’t matter too much that browser wallets are a tad less secure if the coins don’t stay long.
B/ If you decide to not buy Bitcoin for your altcoins or to not lend the money out for interest, you will have to look for a reliable altcoin wallet for “cold storage”.
Hardware Wallets for Altcoins
Sadly, Ledger Wallet said they will not support any altcoins.
For now the only option is Trezor - It supports Electrum wallet which also has Dash and Litecoin integration. You will be able to hold different altcoins on a single device.
Electrum for Altcoins
- There are Electrum incarnations for Litecoin and Dash. That’s probably as decetralized as it can get but beware the general Electrum privacy minus. The clients are pretty much the same as the Bitcoin client in all aspects too. If you are using Electrum for BTC already it’s a good call to get one for altcoins too.
Browser Wallets for Altcoins
If you only need to move altcoins from here to there and don’t want to send money from an exchange to another or if you are not a ultra long time altcoin holder, web wallet will do.
There are a few options for every altcoin (try LiteVault for Litecoin)
If you are not a holder and don’t really care, Cryptonator should do more than fine for you. It is a multi-currency web wallet.
What to read
There is a page dedicated to altcoin comparisons on Cryptocoincharts
CCN published an article about altcoin scalp trading (another name for arbitrage). Quite down to earth - if you are not hobbyist, you need to be able to move a substantial amount of Bitcoin (yours or leveraged)
There is a dedicated sub for all cryptocurrencies called CryptoMarkets.
The subreddit BitcoinMarkets is dedicated to Bitcoin but the mods are allowing posts related to altcoin trading as long as Bitcoin is involved. It is a really down to earth subreddit absolutely lacking all the heated philosophical debates on censorship and block size well from all the rest of the Bitcoin subs.
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Good to Read
- Finance & Technology: VPRO Backlight on Youtube (full documentaries)
- Macro & Bigger Picture: Stratechery
- Wall Street Technologist
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- For Coders: Crypto Trading Tools
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- StockCharts Chart School
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- What is AML/KYC
- How high are fair flat fees
- What are Maker-Taker fees
- How to get trading charts
- How to trade on mobile
- Best practice
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