4 min read
0 comments
Reduced volatility in the cryptocurrency market has negatively impacted its appeal to investors, according to analysis from industry experts. Some argue that a decrease in this characteristic could affect the profitability of transactions and speculation in the market.
Exploiting these discrepancies in values through trading between markets is not a simple task, as there are charges for entering different markets, thus reducing the trading profit. Another relevant aspect to take into consideration is that there can often be a delay in transferring funds between markets. Therefore, under these conditions, negotiation becomes more difficult.
There are several platforms available on the market that automate this process. However, it is important to be aware that there are many malicious people who take advantage of people's lack of knowledge about this practice and launch fake products to steal money. Therefore, experts recommend carrying out thorough research and choosing only recognized and reputable projects. It is crucial to carry out due diligence before engaging in any type of financial arbitration.
“When the network is congested and Bitcoin prices are volatile, arbitrage opportunities arise. However, the increase in exchange volume and on-chain activity increases the correlation between them, which in turn reduces arbitrage opportunities,” they stated.
According to Barros Júnior, a professor at USP, given the frictions in the markets, it is difficult to say that these opportunities have disappeared. However, he highlighted that the identification and use of these opportunities can still present a challenge.
Is it still viable?
No recent studies have examined the current situation in the same platforms of negotiation analyzed by the USP professor. However, research released by other institutions in recent years indicates that the arbitration it is still possible, albeit in a different way than in the past.
For example, in early 2023, researchers in the field of economics published in the journal Finance Research Letters that they found profit opportunities with disparities in platforms Binance, Bitfinex, Bitstamp, Coinbase and Kraken. The period analyzed was from October 2017 to January 2022.
Based on a study of values carried out from May 30, 2018 to October 12, 2019, the expert concluded that an entrepreneur could earn up to US$23,2 over the course of a year and a half with arbitration em platforms of trading, as long as it carried out transactions worth US$1 daily.
At that time, the average discrepancy in the values of digital currencies between all brokers analyzed during the period was 4,1%. At certain times, according to the research, differences could reach 8% for several consecutive days. **This fact could represent a profitable opportunity for attentive investors.**
In March 2021, Barros released an article where he examined the feasibility of participating in arbitration in six different platforms exchange of digital currencies in the Latin American region. These exchanges include three Brazilian companies, which are Mercado Bitcoin, BitcoinTrade and Braziliex (which closed its activities more than two years ago), two Chilean companies, Buda Exchange and CryptoMarket, and a Mexican company, Bitso.
According to Fernando Antônio de Barros Júnior, professor with a doctorate degree at the Faculty of Economics, Administration and Accounting of Ribeirão Preto at the University of São Paulo (FEA-RP/USP), the maturation of the cryptocurrency market could result in a decrease in volatility. This reduction may also imply a reduction in opportunities for arbitration, according to the expert.
Volatility in the crypto market and profit for investors
It is essential that there is instability in the cryptocurrency market so that investors can make profits. If the prices remain unchanged, it will be difficult for them to earn enough to cover transaction costs.
According to a report published by K33 Research in August this year, BTC has become less volatile than the Nasdaq, the S&P 500 and even gold, even after the Federal Reserve raised interest by 0,25 percentage points. This demonstrates the lack of correlation between the digital asset and the traditional market at that time. **This lack of volatility for BTC relative to other financial assets was a surprising and unexpected factor given the global economic context.**
Recently, the tactic of profiting from price discrepancies of a financial instrument in markets different – the known arbitration – was widely used in the digital currency market, known for its high volatility. However, studies and economists point out that this practice has become less attractive and more challenging.
The reason for this is that the cryptoactive market, valued at US$1,4 trillion according to aggregator CoinMarketCap, has become more “mature”. In simple terms, this means that it is more liquid, has more participants and the prices of digital assets are more uniform across brokers, in addition to being more stable than previously.
Source: InfoMoney
