Can you buy Bitcoin from one site and sale it on another?
The quick answer to that is, yes, you can buy Bitcoin from one site and sell it to another. This is an entirely legal process that has worked beyond just Bitcoin, called arbitrage trading. It works by buying an asset in this case Bitcoin from one company and selling to another company for a higher price.
How people got the idea to do arbitrage bitcoin trading
People first got this idea in 2014-2015 when the price difference between Coinbase in the US and MT Gix. Traders quickly noticed that the difference in price was almost $100. By then a Bitcoin was valued at around $700 by CoinBase and $800 by MT Gix. But this idea was quickly discredited by many investors soon after because of some reasons.
Why is Bitcoin arbitrage such a tricky business?
The fee of turning cryptocurrency to fiat is quite high, and so even with a difference in price between the two companies, it was hard to make a meaningful profit.
Some traders say that moving the money from Bitcoin to fiat was quite time-consuming. Bitcoin has been accused of money laundering before, and so companies decided to tighten their security and only send payments via wiring. Paypal was largely discouraged because Paypal has had their own string of money laundering charges. The process was long and tedious, and some had to wait more than five weeks to receive this small profit.
No guarantee of a profit
Volatility is one of the cryptocurrencies most prominent characteristics. Imagine, you buy a Bitcoin at $2, hoping to sell it to another company at $4. Well with this status you would be looking to make a profit of $2, a 100% profit at that. But during the tractions the price of the Bitcoin fluctuates and falls, you end up selling it at $1.5 giving you a loss of 50%. But you also have to account for the fiat fee your losses plummet further.
Traditionally arbitrage trade requires a large some of the capital to make the venture viable. The assumption is you only make a small profit on each dollar. And in order to make it viable, you need a significant amount of money or bitcoin, to begin with.
What are the factors that make arbitrage trade possible?
For this explanation, we will view Bitcoin as an asset, let’s say a piece of land. This land on face value should be valued the same to everyone, but you will find that someone was offered the land at a higher price than the next.
In Bitcoin, this logic still applies to the market, retaining its power. The buyer and the seller can agree on the price.
Location of the cryptocurrency company
Different countries view Bitcoin in different ways, and hence it stands that the taxation and fee are different. Nations that have accepted Bitcoin like the US, the fee would be lower allowing companies to sell and buy at a lower price.
Each company has different goals. Some standard goals are gain more clients and are such a case their fees would be lower. Another famous company goal would make the most amount of profit increasing their cost. In the end, you find out that dealing with different Bitcoin companies result in different profit margins in your returns.
Demand and supply
There is no other price constant higher than demand and supply. It is very evident in the current crypto current market. With the high demand in Bitcoin, the price has sore to almost $4500 today. With the constant number of Bitcoin fixed the demand is set to only rise and hence the rate.
Suffice it to say arbitrage trading is very possible, but as we stand today, it is difficult to make a profit. However, many people use bots to work and create a profit using this system. However, with the competition in Bitcoin arbitrage trading, you must be very good at it.