Crypto Arbitrage Trading on a Peer-to-Peer Exchange: A Beginner’s Guide

Bitcoin to USD peer to peer exchange for arbitrage opportunities

We will present an easy way to perform Bitcoin and crypto arbitrage trading via a crypto peer-to-peer exchange.

  1. Find a crypto exchange where you can deposit fiat for low fees.
  2. Sell your Bitcoin or alternative cryptocurrency at a higher price. This is often possible in crypto peer-to-peer(P2) exchanges.
  3. Deposit your fiat into the crypto exchange from bullet point number 1 (Now it should be more than your initial deposit).
Be aware of the risks. Some reports about traders getting banned from cryptocurrency exchanges doing such arbitrage trading. The main reason seems to be that it’s not possible to control where money comes from in P2P exchanges.

No Financial Advice, Information only. Do your own research

Simple Crypto Arbitrage Calculation

  1. Sign up with Kraken(or any other crypto exchange).
  2. Deposit USD(or your local fiat) to Kraken.
  3. Buy Bitcoin on Kraken. Bitcoin price is $ 30,000, and you buy 0.1 BTC for $ 3,000.
  4. Now, sign up with LocalCoinSwap (or any other P2P exchange).
  5. Add a selling ad on LocalCoinSwap where you sell 0.1 BTC for $ 3,300, and you can earn $300 (no fees deducted here). In the BTC selling ad, you also add your preferred fiat destination. Let’s take a bank transfer in this example.
  6. Now, make another fiat transfer to Kraken and repurchase Bitcoin. This time, you can buy Bitcoin for $3.300. 
  7. Make the process over and over again.

1. Buy Bitcoin with Lowest Fees

Find a Bitcoin exchange where you can buy Bitcoin with very low fees and a reasonable exchange rate.

Preferrable are large exchanges accepting bank deposits with no fees. Some examples are Kraken, Bybit, and Coinbase

Another alternative is to find crypto exchanges accepting PayPal deposits since Bitcoin and other cryptocurrencies can often sell at a premium for money on PayPal. Some alternatives are Coinbase and Bitflyer.

Important aspects

  • Avoid credit card deposits since they are connected with high fees (2-4%)
  • SEPA and SWIFT deposits are connected with as low fees as ZERO.

PayPal to Bitcoin Exchanges

Fiat to Bitcoin Exchanges

Bybit logo

2. Sell Bitcoin at Highest Price

Now, you should have Bitcoin in your possession.

It’s time to find a buyer willing to pay a premium for any reason.

The best chance to find buyers paying a premium on Bitcoin is on peer-to-peer exchanges where Bitcoin usually is trading at a premium (higher price than traditional exchanges).

Important aspects

  • PayPal is one of the most commonly used payment options on peer-to-peer exchanges.
  • Other payment methods are Skrill, Payoneer, Western Union, TransferWise(Wise), Skrill, Perfect Money and more.

Bitcoin Premium on LocalCoinSwap

When we checked, the best price to buy Bitcoin with PayPal at LocalCoinSwap was at an 8% premium. 

PayPal to Bitcoin P2P Exchanges

Localcoin P2P Bitcoin Exchange logo
Bitvalve logo
Hodl Hodl P2P Bitcoin Exchange logo

3. deposit your Fiat Again

Deposit your fiat into the same exchange as you choose from number 1. Now, if you sold via PayPal and used Coinbase or Bitflyer you might be able to deposit directly from PayPal to your crypto exchange. 

Perform step number 2 again.

Crypto Arbitrage Trading Risks

Fees and Exchange Rate

Make sure you understand how fiat deposits work and what fees are involved. For example, if you deposit your local currency, which might be EUR, into an exchange only supporting USD, you will have an exchange loss of around 1-2% from EUR to USD.

Also, ensure you understand there will be a Bitcoin withdrawal fee (often the network fee but sometimes an additional admin fee) when you send your Bitcoin to the buyer.

Timing Risks

Crypto prices are volatile, and an open order in a peer-to-peer exchange can take time to close. The Bitcoin price might change within the timeframe, and it can be unfavorable for you. 

Accounting Rules

Make sure to understand the accounting rules in your restriction for arbitrage trading.

If you start making a continuous and predictable profit, your activities might be considered business activities, and you must set up an accounting.

Also, if you make it for personal profit, you will probably have to pay tax for each sale.

This might be possible to avoid if it’s a business activity.

Nevertheless, ensure you understand the rules in your country if you start profitably doing this continuously.

Closed Accounts

Stories about people who have seen their accounts closed down when buying/selling Bitcoin on P2P exchanges are circulating. Crypto arbitrage trading is legal and allowed. The most likely reason is that Bitcoin has been spreading to and from scams or dark web sold or purchased on P2P exchanges.