A Super Simple Cryptocurrency Arbitrage Spreadsheet for Finding Mismatched Prices
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Crazy stat of the day: You can trade cryptocurrencies on over 170+ different exchanges throughout the world.
Compare this to the stock markets in the United States which have a whopping…2. You know them very well by now (NYSE and Nasdaq), but these markets have had decades of consolidation and mergers.
While this is not an apples-to-apples comparison, cryptocurrency exchange consolidation is a natural market force that will happen eventually.
However, we do not know if this will take months, years…or even decades.
The abundance of choices in exchanges presents a multitude of problems, one of which is a large distribution of prices across all platforms.
Many Exchanges Breeds Many Problems
New markets such as cryptocurrencies all experience the following problems:
- Transactional inefficiency
- Differences in prices
- Changing spreads
These problems exist due to imbalances in supply and demand. If there is a lack of sellers or buyers, the problems mentioned above are enhanced.
Complicating the matter even further, each pricing discovery process is silo’d within each different exchange.
Smart arbitragers recognize this as an opportunity, and they specifically hone in on #2: Differences in prices.
When buyers are able to capitalize on differences in prices between markets, this is known as arbitrage.
The ELI5 Version of Crypto Arbitrage
You have been following the price of a certain coin (we will just call it “coin” for this example) for a while.
One day while looking at prices, you noticed that on exchange #1 the price of “coin” was trading at $95. Simultaneously at exchange #2, “coin” was trading at $100.
Being that you are a smart cookie, you decided to do the following:
- Buy 1 coin @ $95 on exchange #1
- Sell 1 coin @ $100 on exchange #2
- Profit $5 from the difference in price
The crazy thing is, these market inefficiencies in this super new industry are available every day. Wouldn’t it be nice if we had a tool that could spot these price differences easily?
I created a spreadsheet that aggregates coin prices across multiple exchanges for all of the top cryptocurrencies. The spreadsheet uses the following services:
How to Use the Spreadsheet
First time install
The tool is nice and simple to use. It requires about 2 minutes to setup, then after that you are good to go.
- Make of copy of the worksheet: Click here
- Install the Spreadstreet Google Sheets Add-in
- Follow the instructions and log-in to the add-in
- Formulas in the sheet should update
Changing the primary currency
Cell B7 houses the primary currency (aka, the BTC in BTC/USD). Cryptonator has a massive list of currencies, but some of the more popular ones include BTC (Bitcoin), ETH (Ethereum) and LTC (Litecoin).
Changing the secondary currency
Cell C7 houses the secondary currency (aka, the USD in BTC/USD). Once again, Cryptonator has a massive list of secondary currencies, with the most popular being USD (United States Dollar) and EUR (Euro).
How to Read the Graph
The graph will list all the exchanges that Cryptonator currently has trade volume, based on the user’s pairing choice.
In this example, we are using the Ethereum vs. United States Dollar (ETH/USD) pairing.
Cryptonator currently tracks 10 different exchanges, all of which have their own price and volume statistics for ETH/USD.
Using this graph, a savvy investor (AKA you) could:
- Purchase ETH/USD at the Kraken exchange for $463.17
- Sell ETH/USD at the Cex.io exchange for $479.99
- For a potential profit of $16.82
The Pitfalls of Crypto Arbitrage
Of course you, being a savvy investor, know that nothing in life is this simple. This form of trading comes with it’s own pitfalls, and it would be irresponsible of me not to point them out.
- Fees can eat into profits from arbitrage quite substantially. These include maker fees, taker fees, deposit/withdrawal fees, etc.
- Crypto is volatile. In the time it takes to move a currency from one exchange to the next, the price could have rapidly moved against you. It is better to have amounts of the currency already available at each exchange
- This tool does not show the Bid/Ask spread. For example, if the Bid is $19, and the Ask is $20, that gives us a spread of $1. For your own models, it is best to consider the Ask at exchange #1, and the bid at exchange #2
- Volume is key. If a cryptocurrency has barely any volume, you will not be able to sell easily, or at a reasonable price.
Arbitrage is a classic technique in profiting off of assets, and cryptocurrency is no exception.
The large amount of exchanges present in the market creates unprecedented arbitrage opportunity, as each exchange carries it’s own pricing discovery mechanisms.
Take some time and download the cryptocurrency arbitrage tool I created, and see if you can uncover any inefficiencies currently in the market.
Cheers, and happy hunting!
Download the add-in: https://spreadstreet.io/tools/google-sheets-add-in
First time install and login: https://www.youtube.com/watch?v=aLjtPR4T2bg
Cryptonator Ticker endpoint help: https://spreadstreet.io/knowledge-base/cryptonator-api-complete-ticker-endpoint/