Crypto Arbitrage

Every day, tens of billions of dollars worth of cryptocurrency changes hands in millions of trades. But unlike traditional stock exchanges, there are dozens of cryptocurrency exchanges, each displaying different prices for the same cryptocurrencies.
For savvy traders—and ones who aren’t averse to a little risk—that opens up an opportunity to get the edge over their compatriots: play these exchanges against each other. Welcome to the world of crypto arbitrage.


Arbitrage is a trading strategy in which an asset is purchased in one market and sold immediately in another market at a higher price, exploiting the price difference to turn a profit.
Crypto arbitrage is fairly self-explanatory; it's arbitrage using crypto as the asset in question. This strategy takes advantage of how cryptocurrencies are priced differently on different exchanges. On Coinbase, Bitcoin might be priced at $10,000, while on Binance it could be priced at $9,800. Exploiting this difference in price is the key to arbitrage. A trader could buy Bitcoin on Binance, transfer it to Coinbase, and sell the Bitcoin—profiting by around $200.
peed is the name of the game—these gaps usually don’t last very long. But the profits can be immense if the arbitrageur times the market correctly. When Filecoin hit exchanges in October 2020, some exchanges listed the price for $30 in the first few hours. Others? $200.

How do crypto prices work?

So how does cryptocurrency get its value? Some critics point out that cryptocurrency is not backed by anything, so any value assigned to it is purely speculative. The counterargument is roughly that if people are willing to pay for a cryptocurrency, then that coin has value. Like most unresolved arguments, there’s truth to both sides.
On exchanges, the game plays out in order books. These order books contain buy and sell orders at different prices. For example, a trader could make a “buy” order to buy one Bitcoin for $30,000. This order would go on the order book. If another trader wants to sell one Bitcoin for $30,000, they could add a “sell” order to the book, thus fulfilling the trade. The buy order is then taken off the order book as it has been filled. This process is called a trade.

Cryptocurrency exchanges price a cryptocurrency on the most recent trade. This could come from a buy order or a sell order. Taking the original example, if the sale of the lone Bitcoin for $30,000 was the most recently completed trade, the exchange would set the price at $30,000. A trader who then sells two Bitcoin for $30,100 would move the price to $30,100, and so on. The quantity of crypto traded doesn’t matter, all that matters is the most recent price. Each crypto exchange prices cryptocurrencies this way, save for some crypto exchanges that base their prices on other cryptocurrency exchanges.