Investors Gain from Price Arbitrage as Cryptos Turn Volatile
Cryptocurrency investors have started making gains through price arbitrage on Indian and foreign platforms as prices turned volatile over the past few days.
Trading volumes doubled at some exchanges as prices of Bitcoin and other cryptocurrencies fluctuated. Bitcoin traded at $33,130, or ₹24.26 lakh, on international exchanges at 6:30 pm on Wednesday. At the same time, prices quoted on Indian exchanges rose to ₹30.04 lakh.
Bitcoin had fallen to a threemonth low on Monday on speculation that Tesla may sell its holdings of the virtual currency.
While some exchanges are wary of the sudden surge in trading volumes, others see this as a healthy market function.
“It is good for price discovery — the arbitrage opportunities arise from imbalances in pricing mechanisms in two different participation platforms — the arbitrageurs move in and sell the higher price and simultaneously buy the lower price until the gap or imbalance is put to balance,” said Ashish Mehta, cofounder of DigitX, a cryptocurrency platform. “It is kind of an auto-correcting mechanism and is very healthy to keep the prices at various participation platforms tuned to each other.”
In most cases, they suspect investors buy crypto assets on one platform and sell them on another or indulge in similar manoeuvring.
“Trading volumes have increased on our platform as we didn’t have any bigger bank issues and deposit withdrawals were unaffected. Lots of people are not hesitant and they keep trading on our exchange. Also, as there is no ban for customers to stop trading, they like to indulge in different trading strategies, which is completely legal,” said Monark Modi, founder of Bitex, a cryptocurrency exchange.
For Indian traders, this could just be an opportunity as cryptocurrency movements are not affected by global headwinds alone but domestic developments also.
“We have witnessed a 4x jump in trading volumes as compared to last month. Crypto investments are driven by the price movement of crypto assets rather than regulatory uncertainty,” said Shivam Thakral, CEO of cryptocurrency exchange BuyUcoin.
In the past few weeks, exchanges have created specialised wallets, onboarded payment processing companies, used banks outside India and even set up “offline” payment systems to let investors access crypto assets.
While some exchanges are wary of the trade, others see it as a healthy market function