Arbitrage plays a significant
role in the Bitcoin economy, and it serves as a mechanism to maintain price
equilibrium across various exchanges. Individuals and automated bots actively
search for price disparities between different Bitcoin exchanges and capitalize
on them by buying from one exchange and selling to another. This process
ensures that buyers and sellers of Bitcoin can expect roughly the same price,
regardless of the exchange they choose. Additionally, arbitrage promotes
competition among exchanges and helps sustain smaller platforms.
To simplify the trading process
for arbitrageurs, Eun-Joo Hansch Seoung and her husband have developed a
Bitcoin client specifically designed for this purpose. The BTC Trader software
eliminates the need to navigate multiple browser tabs, copy and paste codes and
addresses, and manually execute transactions across various platforms. Almost
all operations can be completed within the client automatically.
Originally developed in late 2011
to early 2012 for the now-defunct Bitcoin exchange TradeHill, BTC Trader had to
adapt when the exchange shut down before its completion. Seoung’s husband,
Andreas, repurposed the software to support the MtGox exchange by utilizing its
API. Today, BTC Trader also integrates with the BitInstant API, provides a
BitcoinCharts overview, and offers market prices for all exchanges supporting
specific currencies. It even allows users to view their balances across
multiple currencies simultaneously.
The software’s capabilities are
showcased in a video tutorial, where 2 BTC are sold for USD on MtGox, the USD
is transferred to BTC-E via BitInstant, and the funds are used to purchase
2.0037 BTC on BTC-E. All these operations are completed within a remarkable 50
seconds.
While BTC Trader still has some
limitations, such as lacking full integration with exchanges other than MtGox,
additional exchange support is in development. The team acknowledges that
integrating more exchanges will require considerable effort but believes it is
essential to serve a broader user base. BTC Trader is ready for public use and
is eagerly awaiting feedback from its first users.
Andreas Seoung answered some
questions about BTC Trader and its role in Bitcoin trading:
How did you first hear about
Bitcoin, and what got you interested in developing a trading application for
it?
Andreas: I discovered Bitcoin in
September 2011 and registered at MtGox on September 24th of that year.
Initially, I traded a few Bitcoins using around 200 Euros from my bank account.
After a few months, I generated enough profit to become financially
independent. I promised my wife that I wouldn’t invest more than 200 Euros, but
my profits exceeded that amount. I explained to her that this money was created
from nothing, so I considered it truly mine. I reinvested my Bitcoins and
engaged in extensive trading. One day, I had the fortune of earning around 30
BTC due to a website error. I tried to contact support but received no
response, so I kept the Bitcoins. At that moment, this event nearly doubled my
funds. Since then, I developed BTC Trader and continued trading.
Many are skeptical that
human-controlled arbitrage can compete against high-frequency trading bots. Do
you believe human trading using your program is still viable?
Andreas: While many people use
trading bots, humans can still generate profits. Humans possess superior
analytical abilities compared to bots, even if the bots are faster. I often
observe bots making slightly cheaper offers when the price decreases. By making
small sell offers, it’s possible to outmaneuver them and lower the price
further. However, more intelligent bots recognize that these better-priced
offers are too small. Traders can also learn the behavior of trading bots and
try to deceive them. For example, you can use a 1 BTC ask to drive the bot’s
price down, but sell the rest of your BTC at a higher price. The bot’s Bitcoins
will sell faster if you manage to get it to sell its Bitcoins at a lower price.
Ultimately, trusting the market and selling your BTC at a higher price will
lead to profit. Patience is key in this process.
Have you personally made any
trading profits using the BTC Trader software?
Andreas: My main strategy
revolves around transferring funds via BitInstant from MtGox to BTC-E. When the
price difference exceeds approximately 0.25 USD, I sell Bitcoins on MtGox,
transfer the USD funds to BTC-E using BitInstant, and repurchase more Bitcoins.
With 100 BTC, this approach can yield approximately 1-2 BTC per day. Speed is
crucial during fund transfers, as other users can buy the cheap ask on BTC-E
while you are transferring funds, resulting in higher USD prices for buying
back BTC. In such cases, you must decide if the BTC price will continue to
rise. Mistakes can happen, but it’s important to remain calm and minimize
losses. The shorter the time required to take this risk, the better. With BTC
Trader, I am faster than users who attempt the process manually, providing an
advantage.
What is your main concern in
making BTC Trader available for users to try?
Andreas: It is challenging to
convince users to adopt BTC Trader. Most Bitcoin users are highly proficient
with computers and often use Linux as their operating system. They trust
open-source software or software they create themselves. Proprietary trading software
for MtGox faces the difficulty of gaining user trust. Sometimes, it feels
impossible to monetize software that users wouldn’t even try, even if it were
offered for free. I was excited when the first user downloaded BTC Trader
today, but I am unsure if they will actually try it. However, their decision to
request a license will reveal their level of interest.
BTC Trader offers a streamlined
approach to Bitcoin arbitrage, simplifying the trading process for both
experienced traders and newcomers. While bots play a significant role in the
market, human traders can still generate profits with the right strategies. BTC
Trader’s development highlights the ongoing efforts to enhance efficiency and
accessibility within the Bitcoin trading ecosystem.
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