The need for clearance of arbitrage!!

Since the last fall in bitcoin and other related coins with no proper reasoning for the fall, we saw a bandwagon effect. Those who had invested for profits at high prices expecting the coin to touch $30000 exited the market with huge losses. Some even took an oath to never ever touch cryptos again.

For those who know that market corrections is not rocket science , this phenomenon was of least importance. I personally made 15% within an hour and exited the market. Not a wave rider, but who wouldn’t like to take advantage of a wave. During this period, for those who were present on multiple exchanges might have observed a huge arbitrage. Especially if you are on an Indian Exchange there was an arbitrage opportunity of approximately 20% on each coin. Another 20% made here too!!

But how long does an arbitrage last on normal stock market/share market. At-least among the NSE and BSE there are arbitrage opportunities which hardly exist for seconds. And what does a quick arbitrage clearance point to? Awareness among investors and traders resulting in fair price discovery.

In today’s date if you open any Indian crypto exchange and a global exchange in tandem, you might still be in for a surprise. Ripple as of now at 15:46 hours on 27th December 2017 is trading at 10 cents of premium on Indian Exchange. This results in an approximate value of Rs 6.41 i.e approximately 8% arbitrage over USD. This phenomenon clearly indicates lack of knowledge among traders.

The sole backbone of crypto currencies is blockchain, and according to https://en.wikipedia.org/wiki/Blockchain the definition is “A blockchain,[1][2][3] originally block chain,[4][5] is a continuously growing list of records, called blocks, which are linked and secured using cryptography.[1][6] Each block typically contains a hash pointer as a link to a previous block,[6] a timestamp and transaction data.[7] By design, blockchains are inherently resistant to modification of the data. The Harvard Business Review describes it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”

With exchanges trading at premium across the globe, the fundamental idea of introducing use case based crypto currencies to offer an equity based value (fair and impartial ) will be lost. For eg: if 1 coin “X” in future can be used to watch a movie in India, the same on an Indian exchange will cost approximately 10% premium of the actual cost in US. This itself hampers the idea of a coin and non intervention of any 3rd parties which is the sole soul of a blockchain. This also raises another question. If one dollar is Rs 64, and one ripple is trading at $1 in US and Rs 70 in India, without any 3rd party players and in the presence of an unregulated free market is $1=Rs 70 ?

So also very few people would exploit this opportunity causing disturbance in the market resulting in nonacceptance of coins. I will not be surprised if regulated exchanges and governments intervene and result in death of cryptos and one of the reason being non disclosure and or discovery of fair market price/value. Yes we are looking at global changes , but if not accepted by the current authorities/regulators, we might as well see the formation of a 2nd economy and or death of cryptos!

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