Asia's Cryptocurrency Arbitrage Boom Fizzles, But Profits Persist
At the height of the frenzied demand for bitcoins in January, when prices of the digital currency were hovering close to $20,000 after a 20-fold jump during 2017, Li and other traders were able to sell bitcoins in China for 30 to 40 percent more than they cost elsewhere
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When China closed its local cryptocurrency exchanges late last year, an underground ecosystem of bitcoin "mules" and peer-to-peer platforms sprung up to allow bitcoin trading to thrive, away from regulators' watchful eyes.
Li, a Canada-based Chinese banker in his 20s, is one of these underground traders. He buys cryptocurrencies in other markets and sells them at a premium to investors in China, who cannot otherwise get them.
At the height of the frenzied demand for bitcoins in January, when prices of the digital currency were hovering close to $20,000 after a 20-fold jump during 2017, Li and other traders were able to sell bitcoins in China for 30 to 40 percent more than they cost elsewhere.
But in a matter of months, the premium for bitcoins in China has fallen to around 7 percent or less as a flood of bitcoin mules, who physically carry cash across borders for the trades, has swamped the arbitrage business. Cryptocurrency funds and individual computer-assisted traders have also piled into the market.
The boom has eaten away the spreads and shown how fast the galloping cryptocurrency markets can change course.
"The market's kind of taken a downturn; there is less general appetite in this space," said John DeCleene, an assistant fund manager running the fintech and cryptocurrency investments at Overseas Chinese Investment Management.
"It is too many players entering this market, but also less of the hype we saw in December-January, when people were paying a 30 percent premium because they expected 10 times gains overnight."
DeCleene launched a $5 million Singapore-based global fund in November to invest in cryptocurrencies, blockchain-related equities and some exploratory arbitrage trading. He said it has generated a 58 percent return so far.