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How to really achieve consistent arbitrage returns in crypto-currency

Arbitrage funds based on volatile assets are not always the best investment. Ovex offers a different solution to achieve consistent arbitrage returns on crypto-currency.

Johannesburg, 13 Jul 2021
Read time 3min 30sec
Photo by Executium on Unsplash.
Photo by Executium on Unsplash.

In March 2021, one of the most popular bitcoin arbitrage funds started unravelling. According to Bloomberg, the fund relied on Grayscale Bitcoin Trust (GBTC), which was backed by Bitcoin (BTC). GBTC traded at a premium to the Bitcoin it held because investors continued to invest excess cash into the trust when not wanting to hold BTC directly. This pushed the GBTC share price above the value of its underlying asset – Bitcoin.

Arbitrage is the act of buying something in one market and selling it for a higher price in another. In the case of GBTC, multiple hedge funds noticed the difference between GBTC and BTC prices, borrowed BTC, deposited them with GBTC for the better-priced shares, then sold the GBTC shares and pocketed the difference.

This, in essence, is arbitrage.

“But it’s a risky form of arbitrage,” says Jon Ovadia, CEO and founder of the South African prime brokerage crypto-currency exchange Ovex, which offers an arbitrage service that guarantees its investors safe returns. “So long as there is a difference in market prices, arbitrage is possible. But this method of arbitrage is risky because it is pinned to a volatile underlying asset. It can come crashing down at any time.”

And it did crash, even before Bitcoin’s price tumbled in May 2021. A confluence of factors, including a slow rally by Bitcoin, resulted in GBTC’s net-asset value dropping by 11.6% in March 2021.

How Ovex’s low-risk arbitrage service works

“We have put a lot of smart minds together at Ovex to come up with an arbitrage service that is both sustainable and guarantees returns,” Ovadia says. “And Ovex’s enormous level of liquidity means we can guarantee capital. Investors never lose a cent in any arbitrage trade. We even take a cut in our own spread if the return on any arbitrage spread is ever less than 1%.”

By capitalising on South Africa’s historical difference in crypto-currency prices between foreign exchanges and local ones, Ovex is able to purchase crypto-currency at the lower foreign price through its UK-based exchange and simultaneously sell it on the South African exchange, regularly pocketing an average of 2% to 5% for its clients as a result of the price difference.

Ovex’s spread is capped at 1%. If the trade’s arbitrage gap is less than 1% then Ovex reduces its spread commensurately. Capital is always guaranteed so that clients never make a loss. Ovex covers all losses as a result of its enormous liquidity.

Click here to find out more.

Added security

By trading simultaneously, Ovex virtually obliterates all risk of price fluctuations. But the company takes its risk-reduction strategy even a step further: It has partnered up with stablecoin TrueUSD (TUSD) – a coin backed 1:1 by the US dollar – and thereby removed all further possibilities of wild price fluctuations.

Stablecoins are crypto-currencies that are backed by an underlying asset and are therefore far less susceptible to unpredictable fluctuations.

TrueUSD has seen arbitrage gains of as high as 8%.

“Our focus is on our clients,” says Ovadia. “We fully intend to become South Africa’s leading crypto-currency exchange. The only way to do that is to make sure our clients are winning. We take a flat 1% spread rather than profit sharing because we want to give the private and institutional investors who work with us the largest returns possible.”

Ovex is well on its way to becoming that leading exchange. It recently raised $4 million in capital from Alameda Research as part of an exclusive funding round. The company is also in the process of putting together a fully regulated hedge fund that will help bring in an average of 23% APY to investors.

To find out more about Ovex’s arbitrage service, click here.

Photo by Executium on Unsplash

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