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Comment by rlpb | Hacker News Reader

> The delays — ten minutes to over an hour — and fees add enough friction to generate the spread between exchanges, even if you assume everyone’s using trading bots as quickly as possible.

Can an arbitrager not simply hold both BTC and cash on multiple exchanges at once? When a price difference swings one way, sell on one exchange and buy on the other, without worrying about transferring anything between exchanges. When the price difference swings the other way, do it the other way round.

If price differences average in both directions over time, you shouldn't run short of either BTC or cash but you will make a profit.

If price difference average in one particular direction, you can notice that trend and transfer across in advance.

An initial investment is required, but that is true of any arbitraging activity.

I had assumed that this is what arbitragers have always done.

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You could do that. It's not really zero risk though because the coin could drop in value. Usually (real) traders who find arbs on (real) exchanges will submit simultaneous bid/ask orders without holding the actual product. They can clear the trades later.

Of course.. if you could take a short position against the coin, you could hedge and eliminate your risk.

> if you could take a short position against the coin

How can you short it? CBOE futures only exist for one exchange. What if that exchange’s price stays steady while others crash? Or that exchange goes up while others crash, thereby triggering margin calls while you lose money? Sure, the situation will eventually rectify itself. In the short term, however, you’re broke.

Margin accounts? It seems like many crypto exchanges offer this. Isn't the example you described the perfect arb situation where you would short sell on the expensive exchange and buy on the cheap exchange?

This isn't done, as evidenced by the very different prices on each exchange. It's considered unwise to keep bitcoins on the exchange, and certain exchanges have a 'trustworthiness' premium that they charge. Presumably there's not enough capital willing to take this risk to move the markets.

People might start taking advantage of the futures market to go short btc, so exchange exposure is only limited to the time it takes to immediately move coin off exchange. Time will tell if that allows enough capital to arb the difference.

You can however gdax limits you to 10k/day of withdrawls from the exchange (be it usd or btc). And gdax has a 3-6 day wire transfer delay.

You end up making more by simply hodling

> gdax limits you to 10k/day of withdrawls from the exchange (be it usd or btc).

That's just the default limit. You can ask for increases.

but the delays are the problem.

There's also more complicated tricks, like arbitraging via an altcoin. I'll mention that later, didn't want to get too detailed right at that point.

Basically, though, it's reasonable to assume that arbitrage is happening as absolutely efficiently as it possibly can, and we still see huge spreads, because the Bitcoin market is structured for inefficiency and volatility.

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