There are quite a few arbitrage opportunities to take advantage of in the world of Bitcoin and cryptocurrency. However, sometimes it is better to skip on certain opportunities. Right now, using USDT arbitrage against Bitcoin may seem like a good idea. Unfortunately, the reality is very different, as things are not as black-and-white.
USDT Is A Dangerous Arbitrage Opportunity Right Now
Most people are well aware of how things are unraveling for Tether. The company can’t convert USDT to USD right now due to banking issues. These are the same issues affecting exchanges such as Bitfinex and BTC-E. It is still possible to convert USDT to USD if people pay a high premium. Last week, the price difference was about 7%. Considering how 1 USDT should be US$1, that’s a big gap.
At the same time, these USDT woes create quite an intriguing arbitrage opportunity. Or that is how things would appear, anyway, even though there are some caveats to take into account. First of all, taking advantage of USDT arbitrage is quite a complicated process. It involves multiple exchanges and there is no guarantee of profit whatsoever.
On the Poloniex exchange, there is quite a healthy BTC/USDT trading volume. One could exchange BTC for USDT at a premium cost and convert the Tether tokens to US Dollars. To do so, the gap between BTC/USDT and USDT/USD needs to be higher than 7% to make a profit. While these opportunities arise now and then, it is not something to take advantage of every single day. Moreover, the BTC/USDT trading pair often declines in value once a few of these trades occur.
It also takes time to buy Bitcoin from an exchange and send it to Poloniex. During this time, the BTC/USDT pair can easily lose value, making the arbitrage unprofitable. Additionally, the USDT/USD exchange on the exchanges can be quite problematic too. Kraken is one of the only exchanges providing this opportunity. Demand for USDT may dry up sooner rather than later, though. We can only hope Tether retains its wire transfer capability soon, yet that remains a big unknown factor for now.
The trade-off between hoping for a favorable arbitrage rate and the potential of USDT reaching US$0 is not worth it. Then again, being cautious with your investments will hardly ever net you a profit either. It is an arbitrage opportunity to take note of, yet one that may not work out for most people. Especially if lots of people start doing it, the profitability will plummet quickly. There is money to be made for those brave enough to try it. However, this article does not serve as official investment advice.
JP is a freelance copywriter and SEO writer who is passionate about various topics. The majority of his work focuses on Bitcoin, blockchain, and financial technology. He is contributing to major news sites all over the world, including NewsBTC, The Merkle, Samsung Insights, and TransferGo.