Do not cancel crypto arbitrage yet.
The past few months have been painful for those doing arbitrage, with spreads narrowing to less than 1%. But then came the implosion of crypto exchange FTX and a sudden strengthening of the rand from R18.50 to R17.20 per US dollar.
In the blink of an eye, the crypto arbitrage market rebounded, with spreads widening to 3.8% last week and continuing to hover around 3% this week. The wider the spread, the more profitable the arbitrage trade.
Arbitrage is the exploitation of price differences of the same asset or product in different markets. For example, you can currently buy bitcoin (BTC) on foreign exchanges and sell it locally for a profit of 2-3%.
Companies such as crypto arbitrage and forex specialist Future Forex, a licensed financial services provider for currency transfer services, are able to automate this process for you.
To do this, as a South African, you must use your One-Time Discretionary Allowance (SDA) of R1 million and Foreign Investment Allowance (FIA) of R10 million per annum – for which you need a tax authorization from the SA tax service (Sars). As an add-on service, Future Forex assists clients in applying for FIA, which is only available to those with Sars tax clearance.
The arbitrage bonus exists because SA has currency exchange controls and limits the amount of money residents can export each year. This means that people are willing to pay a premium to acquire internationally accepted assets such as stocks or BTC.
“People have been saying for years that crypto arbitrage would continually reduce profitability, but here it again offers spreads of 3% or more on trades that take less than a day to complete,” says actuary Harry Scherzer qualified and CEO of Future Forex.
“Arbitrage is a way to avoid the huge volatility we have seen recently in cryptos. We can avoid market risk because trades are fully hedged to ensure that profits are generated when each trade is initiated.
Prior to the recent spread spike, Future Forex was still trading and delivering exceptional returns to clients, processing over R1 billion in October and delivering an average annualized return of over 60%. To date, Future Forex has processed over R7 billion in arbitrage trades.
The performance of Future Forex’s arbitrage product compared to more traditional investments is shown below:
Why would the collapse of FTX cause arbitrage spreads to widen?
“The first thing to keep in mind is that our crypto arbitrage removes as much risk as possible, so regardless of what happens to bitcoin, rand or dollar, all of our crypto arbitrage cycles are fully hedged.
“That means our clients never suffer a loss – and none of our clients have ever suffered a loss,” says Scherzer.
“The collapse of FTX has amplified the perception of risk surrounding crypto, which has been reflected in widening arbitrage spreads. This has been further amplified by the recent strengthening of the rand.
Has FTX Collapse Increased Crypto Arbitrage Risks?
“No,” says Scherzer, “the only crypto arbitrage risk remains third party risk. We had no exposure to FTX and performed extensive due diligence on our third parties to ensure we are working with the most stable and most reliable so that the risk of default is minimal We hedge against all market risks i.e. fluctuations in the rand and bitcoin during the brief period of the arbitrage cycle Without hedging you are exposed to the possibility of the rand or BTC moving against you, wiping out any expected profit.
Future Forex is able to arbitrate using BTC and the USDC stablecoin, which is a crypto version of the US dollar. Scherzer says the benefit of switching between USDC and BTC is that clients can maximize overall profits by taking advantage of the best spread on any given day.
“We have seen times when it is more profitable to arbitrate with BTC, and other times when USDC is more profitable. We are able to switch between the two to maximize returns for clients.
Starting capital required
A minimum of R200,000 is required to start with Future Forex, and is held in the client’s own bank account after each cycle. A realistic net profit goal of 1% to 1.5% per trade is still achievable, Scherzer says. This means clients could earn up to R165,000 per year if spreads remain at this level or even slightly below.
Future Forex does not charge any management fees, but instead shares the profits made. There are no fees or hidden costs and all returns shown above are already net of any fees. This profit-sharing model ensures that the interests of customers are aligned with those of the company.
You can register here.
Brought to you by Future Forex.
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