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The Reduction of Volatility in the Cryptocurrency Market Has Negatively Impacted Its Appeal to Investors, According to Industry Experts’ Analyses. Some Argue That the Decrease in This Characteristic May Affect Transaction Profitability and Speculation in the Market.
Exploring These Discrepancies in Values Through Trading Between Markets Is Not a Simple Task, As There Are Fees to Enter Different Markets, Thus Reducing Trading Profit. Another Relevant Aspect to Consider Is That There May Often Be a Delay in Fund Transfers Between Markets. Therefore, Under These Conditions, Trading Becomes More Difficult.
There Are Several Platforms Available in the Market That Automate This Process. However, It Is Important to Be Aware That There Are Many Malicious Individuals Taking Advantage of People’s Lack of Knowledge About This Practice and Launching Fake Products to Steal Money. Therefore, Experts Recommend Conducting Thorough Research and Choosing Only Recognized and Reputable Projects. It Is Crucial to Conduct Due Diligence Before Engaging in Any Type of Financial Arbitrage.
“When the Network Is Congested and Bitcoin Prices Are Volatile, Arbitrage Opportunities Arise. However, the Increase in Exchange Volume and On-Chain Activity Increases Correlation Between Them, Which in Turn Reduces Arbitrage Opportunities,” They Stated.
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Oil plummets more than 10% and the market turns upside down after Iran opens Hormuz and eases fears about the main route in the Gulf.
According to Barros Júnior, a Professor at USP, Given the Frictions in the Markets, It Is Difficult to Affirm That These Opportunities Have Disappeared. However, He Emphasized That Identifying and Taking Advantage of These Opportunities Can Still Represent a Challenge.
Is There Still Viability?
No Recent Study Has Examined the Current Situation on the Same Trading Platforms Analyzed by the Professor at USP. However, Research Released by Other Institutions in Recent Years Indicates That Arbitrage Is Still Possible, Though Differently from the Past.
For Example, In Early 2023, Researchers in the Field of Economics Published in the Finance Research Letters Journal That They Found Profit Opportunities With Disparities on the Platforms Binance, Bitfinex, Bitstamp, Coinbase, and Kraken. The Analyzed Period Was From October 2017 to January 2022.
From a Value Study Conducted from May 30, 2018, to October 12, 2019, the Expert Concluded That an Entrepreneur Could Make Up to US$ 23,200 Over a Year and a Half with Arbitrage on Trading Platforms, Provided They Conducted Transactions of US$ 1,000 Daily.
At That Time, the Average Discrepancy in Digital Currency Values Among All Analyzed Exchanges During the Period Was 4.1%. At Certain Moments, According to the Research, Differences Could Reach 8% for Several Consecutive Days. **This Fact May Represent a Lucrative Opportunity for Attentive Investors.**
In March 2021, Barros Released an Article in Which He Examined the Viability of Engaging in Arbitrage on Six Different Digital Currency Exchange Platforms in the Latin American Region. These Exchanges Include Three Brazilian Companies, Which Are Mercado Bitcoin, BitcoinTrade, and Braziliex (Which Ceased Operations Over Two Years Ago), Two Chilean Companies, Buda Exchange and CryptoMarket, and One Mexican Company, Bitso.
According to Fernando Antônio de Barros Júnior, a Doctorate-Holding Faculty Member at the School of Economics, Business, and Accounting at Ribeirão Preto of the University of São Paulo (FEA-RP/USP), the Maturation of the Cryptocurrency Market May Result in a Decrease in Volatility. This Reduction May Also Imply a Decrease in Arbitrage Opportunities, According to the Expert.
Volatility in the Crypto Market and Profit for Investors
It Is Essential That There Is Instability in the Cryptocurrency Market for Investors to Generate Profits. If the Prices Remain Unchanged, It Will Be Difficult for Them to Achieve Sufficient Gains to Cover Transaction Costs.
According to a Report Published by K33 Research in August of This Year, BTC Has Become Less Volatile Than Nasdaq, the S&P 500, and Even Gold, Even After the Federal Reserve (Fed, the U.S. Central Bank) Increased Interest Rates 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 BTC Volatility Compared 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 Different Markets – Known as Arbitrage – Was Widely Used in the Market of Digital Currencies, Known for Its High Volatility. However, Studies and Economists Indicate That This Practice Has Become Less Attractive and More Challenging.
The Reason for This Is That the Cryptocurrency Market, Valued at US$ 1.4 Trillion According to the CoinMarketCap Aggregator, Has Become More “Mature”. In Simple Terms, This Means It Is More Liquid, Has More Participants, and the Prices of Digital Assets Are More Uniform Across Exchanges, Besides Being More Stable Than Before.
Source: InfoMoney
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