Why Coinbase is $1,000 above Bitfinex, and when it might end

in bitcoin •  4 months ago

Coinbase is a gateway

Coinbase/GDAX is the main gateway for new money. So it often runs at a couple of % premium to bitfinex in times of increased interest.

Currently it is at about 7% but at the height of the recent rise it hit as high as 15%.

In the usual course of events, when lots of buying happens on coinbase and the price gets inflated, arbiters sell on coinbase. They then move profits to bitfinex (highest liquidity), buy there, and send coins back to coinbase. And repeat the arbitrage cycle.

Problems on Bitfinex

The last part of this cycle is where the arbiters are having problems. Bitfinex are experiencing problems with withdrawals. Likely due to Ethereum (kitties) and Bitcoin (bull run) chains been clogged.

The point is that the arbiters are not able to continue to arb and the new money entering coinbase is pushing the premium higher and higher.

This rise has likely been halted/slowed by one, the top in bitcoin (local or otherwise) and two, by new once off arbiters that usually couldn't compete with the regulars. But these arbiters are likely not set up to move money from coinbase to bitfinex as only large scale customers can deposit fiat on bitfinex. What they can to is use leverage on bitfinex with 1/4 of there money and sell 3/4 on coinbase to make a nice return.

As these new arbiters are regular traders there should be a large supply of them to continue doing this profitable trade for a good while. Currently the trade would net about a 5% return.

The end in sight or the end of site

This premium will likely reduce once/if bitfinex sorts out it's backlog.

Here is what I believe is it's hot wallet.

The backlog got up to 21k btc is now down to 16k so maybe it is clearing now.

If bitfinex can not clear this backlog, firstly it is a very bad sign if you have money in there like me, and secondly if the bull run continues the premium will likely climb higher.

Thanks for reading.

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