BitCoin profits with the Sushi-Burger Shuffle

The BitCoin cryptocurrency has been much in the news of late. What, you don't have BitCoins? (Don't worry, neither do I.) Unless you have a supercomputer in your back yard and a cheap source of power, it's no longer really feasible to mine them yourself. But if you want some, several online exhanges will let you buy BitCoins for real money. But be warned: the price of BitCoins has been wildly volatile over the last year or so, so it's not really clear whether buying BitCoins would be a good long term investment.

BitCoin USD exchange rates at MtGox, Aug 2013-Feb 2014

But what if you could make money with BitCoins, without having to hold any over the long term? Here's one way you could do it, right now:

1. Start with $100 US Dollars (USD)
2. Convert your USD$100 to 10609 Japanese Yen (JPY)
3. Buy 0.82963 BitCoins with your JPY10609 on the MtGox exchange
4. Sell your 0.82963 BitCoins for $113.42 USD
5. Profit!! (to the tune of $13.42)

Now, exchange rates (especially BitCoin exhange rates) vary all the time, so you'll need to do a real-time arbitrage analysis to find a profitable sequence of trades at any given moment. R programmer Tom Johnson showed at the Bay Area R User Group an R script he wrote to do exactly that, pulling real-time foreign-exchange rates from Quandl (with the quandl package for R) and solving the necessary equations to find the arbitrage opportunity. He's wrapped this R script into an easy-to-use Shiny app, so you can find BitCoin arbitrage opportunities via JPY and USD at any time:

So why isn't everyone rushing to MtGox to profit from the "Sushi-Burger Shuffle?". Well, as with most free-money schemes, real-life problems intervene. The main issue is that BitCoin currency exchanges routinely take upwards of 10 minutes to clear, by which time the exchange rates may have changed — elimitating the profit opportunity, or even leading to a loss. And that's on a good day: in recent days, it's been difficult to access BitCoin exchanges at all. So this is more of an interesting puzzle than a real money-making opportunity. Nonetheless, it's also a great example of real-time financial analysis using R.

Tom Johnson: Best 2-Currency Arbitrage with Bitcoin

Comments

[Glenn Strycker]

I've been wondering about this sort of idea lately, but I'm curious what legal problems may arise. What is the legality of converting BitCoins to any particular currency, since no declaration is made on tax forms (to my knowledge)? Are currency exchanges in general subject to tariffs or any other taxes? If so, this work-around may have liability risk in addition to the holding time risk.

I'd buy BitCoins now to play with, except I'm wary that one day there will be a line item on the IRS form asking me to declare them, and privacy is kind of the whole point of BitCoins, so I'd either have to lie or give up that privacy. Until these questions are resolved I'm holding off buying any digital currencies.