Arbs or Bitcoin: pros and cons of investing in both systems
When ones have a certain amount of spare money, they usually find ways to invest and multiply them. Among numerous methods, arbs and Bitcoin should also be taken into consideration. However, as in any other financial operation, never a one correct decision can be made without clear realization of the subject, profitability and risks. It means the essence should be studied.
Investing in arbs
First thing, arbs are a tool to turn money and enhance the capital at a rapid pace. Surebets are bets on pair outcomes − this way, a gambler gains regardless of the outcome itself (in the worst case, it will be a breakeven).
Investing is betting on opposite outcomes (leverages) at max coefficients. Profitability of such operations can lie within 2-10% of the transaction amount; at high funds in, there can be significant amounts out. With that, risks are almost negligible. All that a gambler has to do is to attentively track coefficients and study the intricacies of the sport.
Arbs cannot be found manually, so this process involves special tools − scanners, which are paid. This should be taken into account when calculating ROI (profit?).
As a surebet can appear only in case of different evaluation of the probability of an outcome a bet is placed for, it is quite legal to work with surebets. Technically, this is not arbitrage. However, most bookmakers still apply limitations against surebetters.
Investing in Bitcoin
In contrast to working with good old arbs, ordinary users feel uncomfortable about investing in Bitcoin. The main factor that creates this imperception is that this currency has no real bank accounts, it is not supported by shares of major corporations, and this money cannot be touched.
All that leads to psychological difficulties when deciding to invest in Bitcoin. However, recent rates and reports (speculations at the end of 2017) show that stubborn persons do make money with “unreal” currencies.
There are only 2 ways of getting bitcoins. Both of them assume investing initial funds:
- Purchasing cryptocurrency on exchanges. This method is very user-friendly: real money is just exchanged for bitcoins. The amount of investment is determined according to the current rate and commission (charged by the exchange or exchange service).
- Mining. A miner invests in the equipment that extracts bitcoins. One should realize that despite the seeming free-of-charge basis, this process involves grave investment not only in equipment itself but also in service and maintenance (including electricity bills).
Emission of new bitcoins is limited by technical aspects of the network itself, and it is constrained by BTC 21M.
By middle 2017, just 12.7 currency units had been counted.With every new mined block, the difficulty of mining the new ones raises at an exponential rate. Thus, time resource of mining increases significantly.
Considering mining in the context of investments does not make sense due to abnormal investments in ASIC processors combined into the single network. Today’s “farms” cost millions of dollars, so creating another one is a task either for an extremely wealthy person, or for a company.
Therefore, we will look into direct investments, dealing with buying and selling cryptocurrency:
- Creating a BTC wallet using any desired service (there is no centralized “administration” as the system is P2P);
- Purchasing cryptocurrency at the lowest rate in order to sell it after a rate jump.
For clarity about profitability of arbs and bitcoins, we need to use math and review an example. Let us take abstract data of USD 2,000 to be invested.
Profitability of arbs is calculated separately, as even at the seeming balance, there still a risk that profit will be nothing (unless a bookmaker calculates the margin in another way). At the average, profit of arbs accounts for 5% per day, which provides (once again, the average) deposit (initial investment portfolio) increase by the factor of 2.5 within a month. With a correct strategy applied, initial USD 2,000 can turn into USD 5,000 in just a month.
Calculating profitability using the case: a baseball game, New York Yankees (W1) and Baltimore Orioles (W2). BM1 offers W1 2.1 / W2 1.72. BM2 offers W1 1.88 / W2 2.15. Having betted USD 1,000 for W1 at BM1 and USD 1,000 for W2 at BM2, a gambler will get guaranteed 2,100 or 2,150 (depending on which bet will win). Transaction profitability will be only 5%.
It is never so clear with bitcoins. Forgetting about exchange trading, pay attention to the cryptocurrency rate. According to the February 2018 chart, BTC/USD was extremely volatile and jumped from 6,596.1 to 11,492. Peak values fell on the following dates:
- Min on February 6, 2018;
- Max on February 20, 2018.
This means the following: USD 2,000 invested on February 7 (when buying) could bring USD 2,978.98 in profit after selling on February 21 at 11,393. Profitability could amount to 67%.
However, currency rate is highly unstable. Take a look at the 2017 chart. There was a grave peak on December 17, when 1 BTC equaled 19,105.7 dollars. Further, after several sudden jumps, the rate started falling down to today’s 10,605.2. Thus, from December to late January, profit had been dramatically negative. Let us assume purchasing a Bitcoin on January 6, 2018 (at 17,542.4) and selling it early in March. Invested USD 2,000 would turn into USD 1,209.09 with the loss of USD 790.9 (with no regard of commissions). In this case, the loss could account for 40% of the investment.
Beside main risks that any financial work is related to, there are also some concealed ones. For surebets, they are:
- risk of wasting the deposit after an incorrect evaluation of an arb;
- risk of running into limitations applied by a bookmaker, leading to coefficient constraint;
- risk of account blocking in case of too rough surebetting.
All these risks can be evaluated and mitigated. For instance, one should not forget to round results when surebetting, and also use other safe-gambling methods.
However, speaking of cryptocurrencies, there is a significantly higher risk to lose all money, because:
- Bitcoin’s legal status is not defined yet, so it can become illicit within a country;
- Transactions cannot be canceled − Bitcoins transferred to a wrong account cannot be returned;
- If a third person gets access to the wallet, they can just transfer all funds to another account. In such a case, despite the seeming simplicity of proving the fact of a theft, it will be impossible to refund money or to bring the thief to responsibility (thanks to full P2P anonymity);
- Loss in value should also be considered among other risks. BTC rate cannot be predicted as it shows almost no reaction to external markets.
The scope of risks related to Bitcoins is wider than for arbs. Even if transactions are made carefully, wallet reasonably protected against viruses and third parties, cryptocurrency rate still can fly down to 1 cent for 1 BTC at any moment.
Everybody should decide for themselves whether to invest and what to invest in. When making the decision, one must realize that they will be the only person to take all risks. We have reviewed only 2 ways of investing, and both of them have numerous intricacies to think about, for example to prefer low but stable income or engage in BTC volatile rate flow that looks like a virtual bubble ready to blow, not a stable financial instrument