Hey, I downloaded Bisq today and as expected, bitcoin trades at a premium there (between 1 and 50%).
Now I ask myself: are people doing arbitrage trading by buying on CEX and then selling on DEX?
If yes, what are the drawbacks? If not, why not?
215 sats \ 3 replies \ @tomlaies 12 Sep 2022
You can certainly buy bitcoin at an exchange and sell them at a premium at Bitcoin meetups. There is a need for people that are willing to have their name on the record with Bitcoin disappearing into the void. Idk about bisq/dex arbitrage tho - I think in person is a must
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115 sats \ 2 replies \ @ek OP 12 Sep 2022
Ah okay, I thought maybe this is frowned upon to do arbitrage trading like this. But now that you've mentioned it: Essentially, I am taking the risk to be investigated by the authorities.
And I guess that most coins sold there where bought on a CEX. Else, the trace of most coins on DEXs must never have touched a CEX (originating directly from miners) which seems pretty unlikely.
So arbitrage trading seems to be exactly the reason why it's trading at a premium?
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160 sats \ 1 reply \ @tomlaies 12 Sep 2022
Well,if there is a legitimate reason for a premium we usually don't call it "arbitrage" anymore. You kind of provide a service/a value by washing coins KYC-free after the exchange and get compensated for that - that's a businessmodel, not arbitrage. Might be a grey market businessmodel depending on your country - and maybe find out if your specific region even has a demand for it - but still a businessmodel.
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3 sats \ 0 replies \ @ek OP 12 Sep 2022
I see, thanks for your reply!
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200 sats \ 3 replies \ @nerd2ninja 12 Sep 2022
Yeah so the drawback is, when you buy on CEX, those are kyc coins. When you sell your kyc coins to someone else, the chain analysis companies might assume that their transactions belong to you.
There's also the inconvenience of doing a p2p trade. By the time a money order or cash by mail reaches you, the price could have changed by usually probably 10%
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100 sats \ 2 replies \ @ek OP 12 Sep 2022
lol, sounds very unprofessional. But I definitely have to look into how chain analysis is generally done. I want to do some (basic analysis) myself in the near future to understand more about it.
Mhh yes, but the price for which I bought does not change. So if I buy for 20k and sell for 21k, I still make profit. Doesn't matter what the price on any other exchange currently is.
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50 sats \ 1 reply \ @nerd2ninja 12 Sep 2022
If the drawbacks don't bother you, then do it yourself and make money!
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0 sats \ 0 replies \ @ek OP 12 Sep 2022
I'll think about it, haha, thanks for your reply!
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126 sats \ 0 replies \ @premitive1 12 Sep 2022
I think taxes and potential consideration as a money transmitter are drawbacks.
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107 sats \ 3 replies \ @ca 12 Sep 2022 freebie
Drawbacks? This guy went to prison because of it.
https://twitter.com/rizzn/status/1566555748318023681
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3 sats \ 2 replies \ @nerd2ninja 13 Sep 2022
He got arrested and jailed for instructing someone on how to get around declaring their payments to the IRS.
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0 sats \ 1 reply \ @ek OP 13 Sep 2022
Source?
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126 sats \ 0 replies \ @nerd2ninja 13 Sep 2022
https://www.nobsbitcoin.com/doctor-bitcoin-jailed-for-selling-bitcoin-p2p-warns-others/
"he also patiently aided and educated her in best custody practices, as well as how to not “trigger” banking problems by using specific terms which could result in closure of her bank account (which is a fairly common occurrence and known concern for Bitcoin enthusiasts, particularly at that time). According to Hopkins, Prosecutors later disingenuously charged him with teaching this woman 'how to commit bank fraud.'"
and on that same site you have the FinCen memo which reads:
"Whether a person is a money transmitter under FinCEN’s regulations is a matter
of facts and circumstances."
"This guidance may refer to a pattern of activity as a business model using a title or
name (“label”) that may coincide with a label used by industry to designate a general
type of product or service. The label, however, will not determine the regulatory
application. Rather, this guidance applies to any business model that fits the same key
facts and circumstances described in the guidance, regardless of its label."
"FIN-2008-G008, 'Application of the Definition of Money Transmitter to Brokers
and Dealers in Currency and other Commodities,' September 10, 2008, states
that as long as a broker or dealer in real currency or other commodities accepts
and transmits funds solely for the purpose of effecting a bona fide purchase or
sale of the real currency or other commodities for or with a customer, such
person is not acting as a money transmitter under the regulations. However,
if the broker or dealer transfers funds between a customer and a third party
that is not part of the currency or commodity transaction, such transmission of
funds is no longer a fundamental element of the actual transaction necessary
to execute the contract for the purchase or sale of the currency or the other commodity, and the broker or dealer becomes a money transmitter. This
regulatory interpretation extends to persons intermediating in the purchase
and sale of securities or futures."
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110 sats \ 2 replies \ @P2P_bitcoin 12 Sep 2022
Are you accepting bank transfer as payment? Some traders have had their bank account frozen when doing that until they provide details as to the nature of those funds received. And from there, depending on your response, the bank may take additional measures.
So this is not without financial risk, at a minimum. The higher your volume (size per trade and/or number of trades), the greater the likelihood you receive closer scrutiny. Many small-ish traders (e.g., just a few trades per month) do this type of trading and their bank doesn't hassle them, though even that can vary from one bank to the next as well.
Additionally, a centralized exchange may notice your active trading patterns and may do the same -- freeze your account and insist that you provide further information about a trade (or trades).
These drawbacks help to explain why a 5 to 10% premium when selling is in the normal range.
Now, some arbitrage traders avoid the centralized exchanges by trading both sides. They buy at a price a little below spot, and then sell at a premium. There are sellers who do not wish to use a centralized exchange and thus are willing to sell at a discount through Bisq (and/or other KYC-Free P2P trading platforms).
And finally, there are regulations in various jurisdictions that may apply when trading person-to-person. There have been a few traders that did stuff and probably knew better but did certain things anyway (e.g., structured large trades so each transactoin was smaller than some threshold that required reporting) such that they became a target and then got in trouble with the law.
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25 sats \ 1 reply \ @ek OP 13 Sep 2022
You mean they do chain analysis even after I withdrew my coins? Sounds naive to not assume that, but I didn't think they would care what I do after I did my business with them.
How is that possible? Where can you buy below spot?
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20 sats \ 0 replies \ @P2P_bitcoin 14 Sep 2022
Yes. Some exchanges do that.
https://6102bitcoin.com/coinjoin-flagging
On a P2P trading platform, I as the seller can set whatever price I want. Let's say I normally find it can take up to a day to find a buyer even if I have my offer priced at spot price. So if I want to do a quick trade, I can set the price below spot (e.g., -3% of spot price). There is a greater chance that the discount will motivate a buyer to take my offer.
Just looking at Yadio Market, I see at least a couple dozen offers on P2P trading platforms where bitcoin can be bought, paying with a USD payment method, at a price below spot:
https://yadio.io/market.html
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15 sats \ 0 replies \ @kristapsk 13 Sep 2022 freebie
People did that years ago on LocalBitcoins, do now on HodlHodl, don't think Bisq is different. If there are profits to be made, somebody will do it.
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10 sats \ 1 reply \ @rijndael 13 Sep 2022
there's a wiki page! https://bisq.wiki/How_to_do_arbitrage_on_Bisq
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0 sats \ 0 replies \ @ek OP 13 Sep 2022
Ah nice, didn't know that, thanks! So I was totally wrong that arbitrage is frowned upon, haha: "It is a very necessary role in financial markets".
It just felt weird to profit of people who want to stay anonymous. But such is life, I guess!
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