The most profitable, but most operationally challenging arb is the Bitcoin China premium. For those who can easily and cheaply move CNY offshore and exchange into USD or HKD, the 6%-10% premium was easy money.
Assuming you know the right people, it costs between 1%-2% to move CNY offshore into Hong Kong. That leaves a healthy 5%-9% profit.
Those who lack the ability to move CNY offshore, can take a short directional view on the premium. Cash floods into exchanges once banks open on Monday, which will compress the premium. At that point traders can cover their XBT/CNY short and hopefully profit.
Moving money onto US exchanges like Coinbase and itBit is generally more difficult than moving USD onto exchanges such as Bitfinex, Bitstamp, and OKCoin.
Extreme price volatility over a weekend causes extreme distortions across US and non-US exchanges. Bitfinex and OKCoin had the highest price for Bitcoin, while itBit, Bitstamp, and Coinbase the lowest.
Bitfinex and OKCoin have the largest XBTUSD P2P margin trading books. With leverage, up and down moves are amplified. In a general upward trend, expect these exchanges to be more expensive than those where all purchases are fully funded.
Idle USD held on Bitcoin exchanges is dangerous because of opportunity cost and counterparty risk. But in a bullish environment, a prudent trade is to transfer USD to Bitstamp, Coinbase, or itBit. When the premium blows out over weekends or bank holidays, buy Bitcoin cheap and sell it expensive on Bitfinex and OKCoin. Savvier traders can spread trade back and forth as the premium expands and contracts.
The weekend cash crunch affected the BitMEX XBTUSD swap product as well. The daily funding rate blew out to 0.70% per day, and the contract even traded at an additional 2%-3% premium.
For those with spare USD who want to earn high rates of interest, buying Bitcoin, selling XBTUSD, and earning the daily funding plus the contract’s premium was a profitable strategy. This strategy is market neutral. For more information on the mechanics of this trade, please read Earning Interest Income on XBTUSD with Minimised Risk.