How To Make Money With Bitcoin

 

Thursday, January 30, 2014 As of 2:43 AM EST

A stable currency’s value rises and falls on a daily basis, but on a much smaller scale then what can be seen with bitcoins. Where normal arbitrageurs are dealing with minute changes in value (less than a penny’s difference can still mean thousands of dollars profit risk-free), bitcoin arbitrageurs deal in the difference of full dollar amounts. As of this writing, current closing prices on Mt.GoxUSD are $875; Mt.GoxCNY closing prices are 5415CNY, or just shy of $892.

For example, say Joe was an early investor, and he has 5000 BTCs sitting in a digital wallet (much like Kristoffer Koch found he had late this October). If he were to sell those on Mt.Gox today, he would be $4.375 million richer. However, if he were to take advantage of the arbitrage between CNY and USD values of BTCs he could create $80,000 more for himself, grossing over $4.45 million. Of course, this is a simplistic exercise; there are fees associated with foreign transactions and currency exchange, but the point is the same. Just before the Dec. 5 crash, USD values were around $1,200, and depending on the bitcoin exchange, foreign prices were even higher.

For a day and a half, trading prices plummeted, dropping 50 percent from record-setting highs to just under $600 on Mt.Gox, “the world’s largest Bitcoin exchange.” The price of bitcoin has risen again, further illustrating how volatile the cryptocurrency is.

The decision to halt financial institutions from deals involving bitcoins came after a period of high arbitrage with the Chinese Yuan (CNY), where opportunistic investors capitalized on the value differences between BTC, USD and Yuan. As more regulation from national banks is potentially on the horizon, some investors are questioning the future of the currency and its money-making potential.

Thursday, January 30, 2014 As of 2:43 AM EST

A stable currency’s value rises and falls on a daily basis, but on a much smaller scale then what can be seen with bitcoins. Where normal arbitrageurs are dealing with minute changes in value (less than a penny’s difference can still mean thousands of dollars profit risk-free), bitcoin arbitrageurs deal in the difference of full dollar amounts. As of this writing, current closing prices on Mt.GoxUSD are $875; Mt.GoxCNY closing prices are 5415CNY, or just shy of $892.

For example, say Joe was an early investor, and he has 5000 BTCs sitting in a digital wallet (much like Kristoffer Koch found he had late this October). If he were to sell those on Mt.Gox today, he would be $4.375 million richer. However, if he were to take advantage of the arbitrage between CNY and USD values of BTCs he could create $80,000 more for himself, grossing over $4.45 million. Of course, this is a simplistic exercise; there are fees associated with foreign transactions and currency exchange, but the point is the same. Just before the Dec. 5 crash, USD values were around $1,200, and depending on the bitcoin exchange, foreign prices were even higher.

For a day and a half, trading prices plummeted, dropping 50 percent from record-setting highs to just under $600 on Mt.Gox, “the world’s largest Bitcoin exchange.” The price of bitcoin has risen again, further illustrating how volatile the cryptocurrency is.

The decision to halt financial institutions from deals involving bitcoins came after a period of high arbitrage with the Chinese Yuan (CNY), where opportunistic investors capitalized on the value differences between BTC, USD and Yuan. As more regulation from national banks is potentially on the horizon, some investors are questioning the future of the currency and its money-making potential.

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