Contemporary automation vendors have large arsenals of tools allowing users to build advanced arbitrage bots that engage in intramarket and intermarket operations. You can also set up a triangular arbitrage system to ensure that you have favorable trades at any given moment. It takes some skill and research to build something that works reliably and produces meaningful returns, but all this hard work pays off greatly.
We are entering a very exciting period for the crypto market with Bitcoin halvening on the horizon and thousands of new institutional investors entering the ecosystem. People who understand arbitrage trading and want to focus on this incredibly safe and consistent strategy will find plentiful opportunities to make money in 2024.
New trends in cryptocurrency arbitrage
Automation is the only viable way to engage in crypto arbitrage in 2024. With competition speeding up the price convergence, finding opportunities is possible but it takes a lot of time and unwavering attention from a retail trader. Robots are better for such strategies due to several important advantages:
- A bot never sleeps or rests. Crypto markets work around the clock with only occasional pauses for maintenance or accounting. Some valuable crypto arbitrage opportunities may appear out of blue during the night in the US due to the increased activity in Asian markets. Humans often miss them, but robots react to opportunities whenever they spot them.
- Robots always follow the instruction. Unfortunately, even the best of human traders make mistakes all the time due to emotionality or tiredness. An automated trading system engaging in cross-exchange arbitrage will never fail to open a profitable trade following its instructions without any chance of something going wrong on the side of a retail trader.
- Bots are much faster than us. One of the biggest risks of any arbitrage strategy is the dreaded price convergence when market discrepancies are eliminated by trades before you can capitalize on them. Humans have to deal with clunky user interfaces slowing their reaction time and allowing the prices to converge. Bots connect to centralized exchanges directly via API and instantly place orders when an opportunity presents itself.
Automation in general has been on the rise recently with over 65% of all individual retail traders using it to some degree. All institutional investors already utilize robots to their fullest potential and automate up to 99% of all their operations. This trend has been apparent to many experts for a decade, but the year 2024 can become a new turning point due to the influx of new capital holders and the raised awareness of conservative investors.
The rise of DeFi arbitrage
One of the biggest trends in the crypto market is the slow and steady adoption of Bitcoin by large institutions aiming to use it as value storage for their clients. However, the meticulous and systematic purchasing of $BTC tokens by large capital holders may lead to a very interesting situation where DeFi tokens that never enjoyed mainstream attention suddenly become relevant once again.
Some crypto enthusiasts are talking about the merits of using fully anonymous currencies like Monero (XMR) or switching to promising networks like Cardano and Solano as centralization and regulation seem to be increasing for Bitcoin and Ethereum.
An inflow of liquidity in markets for Ripple, Monero, Cardano, Solano, Polkadot, and other altcoins will create massive opportunities for people interested in automated arbitrage. We strongly believe that the landscape of the cryptocurrency industry will be shaped by investors who diversify and want to spread their portfolios across multiple crypto markets allowing Ethereum arbitrage traders to benefit from trading within the network and altcoin traders to take advantage of increased liquidity.
The power or artificial intelligence
Using expert AI systems to enhance various crypto trading strategies is not a new concept, but it took off in 2023 thanks to the hype around the OpenAI’s ChatGPT that became an overnight sensation and created a whole new industry that rapidly formed a new potential tech bubble. Whether machine learning algorithms powering new predictive text generation models will have the unexpectedly game-changing effects in various industries including trading is a topic with a big question mark.
Undeniably, many automation companies decided to venture into the world of artificial intelligence and machine learning to jump on the AI bandwagon. However, only a handful of vendors succeeded to roll out interesting products. AI-powered arbitrage is still not something that you can use, but some companies may offer such products in 2024.
Here are some interesting AI-powered tools offered by automation vendors right now:
- AI-assisted statistical arbitrage from WunderTrading. This product is an amazingly complicated portfolio management tool that can run a complex statistical arbitrage system autonomously based on a couple of initial prompts from its user. You can use it as part of any paid subscription and enjoy an investment strategy that was previously available only to large capital holders.
- AI-driven grid bots from 3Commas. It is hard to pinpoint what exactly an expert artificial intelligence system brings to the table when it comes to grid trading, but 3Commas and Cryptohopper are exploring the idea of implementing machine learning algorithms to enhance DCA and grid bots and make them safer for retail traders to use.
Despite what selling pitches from automation vendors might tell you, not every crypto trading bot can be enhanced with expert AI systems. While it makes sense to utilize machine learning to train an AI in sophisticated multi-level portfolio management, trying to enhance something as simple as grid or DCA bots is not as impressive or useful.
Should you focus on Bitcoin arbitrage?
One could argue that the rising price of $BTC caused by the influx of institutional investors in the industry creates many opportunities for retail traders focused on arbitrage. However, accumulating Bitcoin tokens instead of trying to create a source of passive income by trading it seems to be a better idea.
When an expert tips you off about a potential price change that can create exciting entry point for an arbitrage Bitcoin trade, you should take it with a grain of salt. $BTC price disparities disappear quickly due to intensity of trading and instant order execution. It is quite hard to find good intramarket arbitrage situations for Bitcoin.
On the other hand, holding it until it appreciates and selling further down the line is a good strategy employed by thousands of investors. Many saw outstanding returns on their investments and have been holding since the early 2010s. With many optimists predicting the rise of Bitcoin to a new ATH in 2024, it may be a better idea to DCA right now and cash out later.
Use crypto arbitrage for risk management purposes
Any well put together arbitrage system is quite safe since our bots won’t engage in trading until they identify a perfect opportunity. It is a very safe approach to trading, but it comes with certain risks that are exacerbated by the nature of the crypto market that works around the clock and tends to quickly converge prices even across continents.
Here are some points to consider from the perspective of risk management:
- Profits from arbitrage systems are quite low compared to riskier strategies, but the increased safety allows retail traders to use them as a hedging mechanism against market positions exposed to higher risks. Adding arbitrage bots to your portfolio can be a good way of covering losses incurred by other investment activities.
- Statistical arbitrage bots can be quite good at reducing the overall risk profile of your assets. By changing the composition of your portfolio based on price dynamics in the crypto ecosystem, AI-assisted crypto arbitrage robots can make money consistently while avoiding unnecessary risks and keeping your investments diversified.
- Triangular arbitrage is a good way of making money reliably without creating accounts with several exchanges and spreading your portfolio thin. If you want to run a cross-exchange arbitrage system, you will need a sizeable capital with different assets held on multiple trading platforms. Triangular arbitrage is slightly more complex, but does not as capital intensive.
Contemporary automation services like WunderTrading allow retail traders to include various types of arbitrage systems in their portfolios for diversification purposes. Since many of these bots have low risk style, it means that you can use them to create a balanced investment plan with any level of risk that you prefer.
Do not sleep on arbitrage bots in 2024
It is quite possible that using crypto arbitrage trading in the year of the dragon will be the most efficient way of utilizing capital. With a big influx of liquidity in the crypto market and the power of automation on your side, it is possible to run an extremely successful arbitrage trading system without exposing your assets to risks commonly associated with crypto trading.