Assignment on Blockchain Terminal Cryptocurrency Arbitrage

1.0 Executive Summary

1.1 Problem

1.2 Solution

1.3 Market

1.4 Competition

1.5 Financial Highlights

2.0 Opportunity

2.1 Problem worth Solving

2.2 Our Solution

2.3 Validation of Problem and Solution

2.4 Roadmap/Future Plans

3.0 Market Analysis Summary

3.1 Market Segmentation

3.2 Target Market Segment Strategy

3.2.1 Market Needs

3.2.2 Market Trends

3.2.3 Market Growth

3.3 Key Customers

3.4 Future Markets

3.5 Competition

3.5.1 Competitors and Alternatives

3.5.2 Our Advantages (see an example)

4.0 Execution

4.1 Marketing Plan

4.2 Technology

4.3 Equipment and Tools

4.4 Milestones

5.0 Company and Management Summary

5.1 Organizational Structure

5.2 Management Team

5.3 Personnel Plan

5.4 Company History

6.0 Financial Plan

6.1 Revenue/Sales Forecast

6.2 Expenses

6.3 Projected Profit and Loss

6.4 Projected Cash Flow

6.5 Projected Balance Sheet

6.7 Business Ratios

 1.0 Executive Summary of Blockchain Terminal Cryptocurrency Arbitrage

The purpose of this business plan is to raise funds for and lead the development of a cryptocurrency arbitrage operation while showcasing the expected financials and operations over the next year. The Blockchain Terminal Cryptocurrency Arbitrage (“the Company”) is a Toronto based corporation that will provide investment management for its investors in its targeted market. The Company was founded in 2019.

1.1 Opportunity of Blockchain Terminal Cryptocurrency Arbitrage

There are numerous cryptocurrencies and crypto assets, and a variety of markets on which they are exchanged. Arbitrage opportunities arise among these various markets, and a corner of the Internet is financially capitalizing on these opportunities by programming algorithms that automatically execute trades. Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price.

It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. When you buy bitcoin or any other currency on an exchange where the price is lower, you can make a profit by selling on an exchange where the price is higher.

Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient. You buy currency on Exchange-1 and then transfer it to Exchange-2 for the purpose of selling it.

Depending on how quickly the transaction is confirmed on the blockchain and the time of processing the withdrawal of funds by the exchange, the entire transfer of funds can take from minutes to hours.

1.2 Solution of Blockchain Terminal Cryptocurrency Arbitrage

The main problem with arbitrage is that the opportunity may be completely exhausted before it can be identified and processed. We plan to use a proprietary algorithm and associated user interface to provide clients with low-latency servers to connect to exchanges to (mostly automatically) perform arbitrage.

1.3 Market of Blockchain Terminal Cryptocurrency Arbitrage

Most trading occurs on large centralized exchanges, such as Binance and Coinbase. These exchanges allow users to trade one cryptocurrency for another, as well as trade between crypto and fiat currencies (e.g. US dollars, Euros). They do this by matching the trade orders of their traders in a similar manner to how order books are used for traditional securities trading.

Someone can place a trade order to buy token A for token B at a given exchange rate, and the exchange will match that order with someone else’s order to sell token A for token B at a compatible rate. With enough sellers and buyers, and an overall high volume of such trades, prices for tokens are established.

The prices are the equilibrium points for where supply meets demand, as found in traditional economic models.

Our target market is anyone currently trading on Binance, Coinbase, or another exchange, and anyone from an investor interested in cryptocurrency, to a Hedge Fund Prime Broker/Custodian interested in cryptocurrency arbitrage.

1.4 Competition of Blockchain Terminal Cryptocurrency Arbitrage

Competitors exist that allow users to create trading bots that automatically buy and sell cryptocurrency based on a set of rules. Rules set for automatic trading bots includes: purchase cryptocurrency or investment products at relatively lower prices and immediately sell at high exchange rate. Moreover, another rule is to ensure maximum arbitrage for customers through legal means. Almost all competitors in this space fail at what they do because of the main problem outlined in 1.2 Solution, that is, that the arbitrage opportunities are completely exhausted before they can be fully identified and processed.

Competitors researched for this plan include include: AlgoMate, Margin.de, Bitsgap, Executium, Admiral Markets. Other competitors may be added at a later date. A more in depth analysis follows in section 3.5 Competition.

1.5 Financial Highlights of Blockchain Terminal Cryptocurrency Arbitrage

Our customers interested in arbitrage currently includes as many people as: around 10,000 customers working as investors and businessman in Korea and having interest in crypto currency for investment. Each of these customers will invest around $1,000. While on the other hand, a small number of individual investors interested to invest around $100,000 or more are also potential customers for Blockchain Terminal Cryptocurrency Arbitrage.

2.0 Opportunity of Blockchain Terminal Cryptocurrency Arbitrage

2.1 Problem Worth Solving of Blockchain Terminal Cryptocurrency Arbitrage

Nearly half of the top 50 wealthiest individuals in the world are managers of arbitrage operations. Such a lucrative payday in the realm of possibility makes arbitrage a problem worth solving.

2.2 Our Solution of Blockchain Terminal Cryptocurrency Arbitrage

We will offer a solution that allows users to automate trading strategies with trading bots. These bots are created and destroyed using a simple REST-based JSON protocol. Some bots are loaded automatically for everyone, and custom bots can also be created and destroyed using the REST API.

2.3 Validation of Problem and Solution

The identified problem is valid for the investors of digital currency and other investors who want to take benefit from the exchange rate difference. The proposed solution for this problem is to provide a platform to all investors with automatic systems and bots for customers to enable them to enjoy arbitrage in different markets.

2.4 Roadmap/Future Plans of Blockchain Terminal Cryptocurrency Arbitrage

A roadmap needs to be developed for the execution of future business activities regarding the availability of a platform for investors to take advantage of crypto currency and bitcoins arbitrage.

3.0 Market Analysis Summary

3.1 Market Segmentation

A specific market will be identified for this business to be targeted as users. Services will be provided for the maximum advantage of the users and individual investors from the Korean community as well as the US. Blockchain Terminal Cryptocurrency Arbitrage will follow demographic segmentation and geographic segmentation strategies for the segmentation of the overall population. High-income group of people will be selected without any kind of discrimination based on gender or age. Potential buyers and sellers of cryptocurrency will be selected through market segmentation.   

3.2 Target Market Segment Strategy

Customers and markets are targeted based on the identified segmentation strategy for Blockchain Terminal Cryptocurrency Arbitrage. The following points are taken into consideration while developing the target market segment strategy. 

3.2.1 Market Needs of Blockchain Terminal Cryptocurrency Arbitrage

The market needs to have a secure platform for the investors of crypto currency, bitcoins, and all other digital investment products. Moreover, the market also needs to have platform support for the goals of arbitrage. Although, the primary needs are security and high probability for arbitrage in return of trade.

3.2.2 Market Trends of Blockchain Terminal Cryptocurrency Arbitrage

Korean households and private investors are highly interested to take benefit of their extra money and additional income by investment in attractive investment products such as securities, bonds, shares, digital currencies, bitcoins, and similar investment products.  

3.2.3 Market Growth of Blockchain Terminal Cryptocurrency Arbitrage

Digital currencies are now the attraction of many investors. Considering it a relatively safe investment product many investors are switching from equity market to crypto currency which indicates a positive growth rate for the market. While on the other hand, another reason for the growth is continuously improving and advancing information technology.

3.3 Key Customers of Blockchain Terminal Cryptocurrency Arbitrage

Key customers of Blockchain Terminal Cryptocurrency Arbitrage are people having financial strength enough to invest $1,000 and individual investors who can make the investment of $100,000 or above. The total number of customers targeted as customers from the Korean market are around 10,000. 

3.4 Future Markets of Blockchain Terminal Cryptocurrency Arbitrage

In future, Blockchain Terminal Cryptocurrency Arbitrage would expand to the international market also. 

3.5 Competition of Blockchain Terminal Cryptocurrency Arbitrage

Bitsgap

A. Overview

Bitsgap arbitrage is standard mathematics and the fast execution of trades on exchanges.

B. Interface of Bitsgap arbitrage system

A crypto trading pair always consists of a base currency and a quote currency, such as BTC (base currency) / ETH (quote currency).

1. Buy exchange - This is the buy exchange where the price of the base cryptocurrency is always cheaper. An individual user can filter out the exchanges you are interested in with a better purchase price 2. Sell exchange – This exchange will work for the buyers as it would provide them a better price for commodity or asset to be exchanged, the filter works just as in

number 1 3. Balance to be used - This is the function used to limit the volume of traded funds. For example, you have 1 BTC on your balance. The maximum size of an arbitrage trade allows it to be used fully, but you can choose to use only 10% of the balance and only 0.1 BTC will be used. 4. Search - Smart search allows you to filter the coins you are interested in. You can

specify pairs such as BTC/USD or just BTC to find all combinations of Bitcoin and arbitrage, and you can specify any number of search items by separating them with a comma. Example "BTC, LTC/ETH, XRP, XLM/USDT" 5. Pair - This is the cryptocurrency pair through which the arbitrage transaction takes place, also on this line you will see the buy and sell exchanges and the prices of the given pair on these exchanges. 6. Profit - This is the profit you have made after the completion of this arbitrage

transaction. The profit is calculated by taking into account each exchange and the standard taker fee. If your fee is lower than the standard fee, the profit from the arbitrage transaction will be even higher for you. 7. Execution - This field is intended for displaying the "Trade" button or describing

why you cannot execute this trade now.

C. How does arbitrage work on Bitsgap

1. The standard way of executing an arbitrage trade:

You buy currency on Exchange-1 and then transfer it to Exchange-2 for the purpose of selling it. Depending on how quickly the transaction is confirmed on the blockchain and the time of processing the withdrawal of funds by the exchange, the transfer can take from a minute to maximum 3 hours. The problem with this method is that the arbitrage opportunity may be completely exhausted during the transaction.

2. Executing an arbitrage trade with Bitsgap

Lightning fast execution of the arbitrage transaction in case of availability of the quote currency at the buy exchange and the availability of base currency at the sell exchange, as well as the availability of necessary volumes.

Imagine that you are making a transaction through the BTC / USDT pair with a volume of 0.1 BTC on Kraken > Bitfinex. You already have the USDT needed to buy 0.1 BTC at a lower price on Kraken and also have the 0.1 BTC on Bitfinex for which it will be sold in USDT at a higher rate. This means that there is no need to wait until the bitcoin from Kraken reaches Bitfinex because you already have the necessary

volume. It means that you can make the transaction, rebalance the funds and repeat the transaction again.

3. After clicking the Trade button, Bitsgap will send 2 limit orders:

1). 0.1 BTC buy order for USDT will be sent to Kraken

2). 0.1 BTC sell order in USDT will be sent to Bitfinex

In case of success (and in most cases successful trades will be made on both exchanges) we will consider this trade as completed and the information about it including the amount of profit will show up in the History section.

D. Problems related to the execution of arbitrage trades

Although the arbitrage solution provided by Bitsgap allows you to execute transactions almost instantly, there are some problems you may face during the process:

1. We cannot guarantee 100% execution of arbitrage transactions as during the

Transaction process there can be a lot of problems such as the lack of necessary rights for trading on your API keys. While temporary technical maintenance on one of the exchanges and unavailability of the API service are also some major problems. Although another problem lack of necessary volume which could happen if someone has managed to make a deal on this lot before you. You may find yourself in a situation where the deal was successfully executed on one of the exchanges, but something went wrong on the second.

2. Bitsgap does not have the technical capability to verify whether deposits / withdrawals are turned on the exchanges, as such information is not transmitted through the API. Therefore, you need to manually check whether the exchange has disabled the option of depositing and withdrawing the base and quote currency for your arbitrage pair. Otherwise, there is a risk you may be ‘stuck’ with one currency.

3. There may be periodic problems with certain coins, as different exchanges use different blockchains/protocols for the same coin, which makes rebalancing impossible. Bitsgap does not have access to such data, so you are solely responsible for checking this coin. (For example, the popular USDT cryptocurrency has 2 protocols: Omni and ERC-20).

Algomate of Blockchain Terminal Cryptocurrency Arbitrage

A. About Algomate

Algomate is a trading platform that sits on top of exchanges (plug in your keys and go - we encrypt and secure the keys; no access once put in... so save a copy!).  Algomate allows users to trade through 15 exchanges currently (we're in the process of adding support for more). At this platform of Algomate users can also add their ETH wallet balances (no interactions yet) and create Algomate (C# algorithms to automate trading). 

B. Current Setup of Blockchain Terminal Cryptocurrency Arbitrage

Algomate has a free tier, whereas users can place 1 trade at a time (users can have 1 active order) and have 5 Algomate In addition, Algomate has paid tiers which reduce the cost. Algomate charges users for the virtual machine that their setup sits on (each user gets their own machine - for security of keys and automated processes).

Executium of Blockchain Terminal Cryptocurrency Arbitrage

A. Why Executium is so Perfect

When it comes to trading with executium, we not only offer you 0.002 Free Bitcoin, but we also work with the biggest and the best trading exchanges around, working with Bitstamp, Bitfinex, Kraken, Bitmex, Bittrex and best of all Binance, while we will also have others coming in the future.

Executium arbitrage supports TWAP trading strategies (Try-out time-weighted average price strategies).

B. Different types of trading

If we take a look at the types of arbitrage that exist, they can be broken down into three groups: simple arbitrage, trigangular arbitrage, and convergence arbitrage.

1. Simple arbitrage

This simple process involves selling the same coin as soon as possible on separate exchange markets. It is simple because it involves the simple trade of one currency.

2. Triangular Arbitrage

Unlike simple arbitrage, this method employs the price difference between three currencies. It doesn’t mean three cryptocurrencies. It means three real world currencies. Example: Buying in USD, then selling it in EUR to profit from the exchange and then back again to profit from EUR to USD.

3. Convergence arbitrage

This method makes very efficient use of the demand-supply shortcomings. It is all about buying on one market where the coin may be undervalued and selling where it is overvalued. When the two prices converge to a common selling point, that’s when you can profit from it 

Admiral Markets of Blockchain Terminal Cryptocurrency Arbitrage

Admiral Markets provides an easy and convenient way to start trading no matter how experienced you are. With a UK arm regulated here in Britain, this platform is popular for casual and professional traders alike. With a huge range of assets including both standard and exotic forex pairs and a variety of CFD stocks and commodities to pick from, you will have plenty of asset investment choices. This guide will carry out a CFD broker comparison to help you decide whether or not Admiral Markets is the best CFD broker for your trading requirements.

1. Lots of customisation options 2. Robotic trading function available 3. Easy deposit process 4. Handy mobile apps for iOS and Android

3.5.1 Competitors and Alternatives

3.5.2 Our Advantages (see an example)

4.0 Execution of Blockchain Terminal Cryptocurrency Arbitrage

It appears that arbitrage is likely possible in the crypto markets. Just with low profitability and potentially large fat tail risks. Developing a cryptocurrency arbitrage strategy that works will be quite complicated, requiring a lot of work and technical expertise.

A. Fund Exchange Accounts. Place funds on different exchanges which will be monitored for arbitrage opportunities. These funds will be used to execute a simple arbitrage where the same asset is bought and sold instantaneously when an opportunity arises. Ideally, we want to have plenty of funds on multiple exchanges since the process to transfer funds from one exchange to another is time consuming and can become expensive. Not to mention, it’s easiest to strike at opportunities the split second they happen.

B. Identify Opportunities. Gather data on price via exchange APIs and price aggregators such as Coinmarketcap.com and Coingecko.com. Sort and clean the data to give the most likely arbitrage opportunities. Build a trading hub with a spoke for each exchange. Stream diffs around to each spoke from the hub. Identify opportunities by looking for a difference in pricing across exchanges. Compare the highest bid prices to the lowest ask prices to see where these values overlap. Anything which is overlapping is a potential arbitrage opportunity. Scale the strategy (and software) to include as many exchanges and pairs as possible, increasing the optionality.

C. Quantify Opportunities. Calculate the value of the opportunity by systematically simulating the selling and buying of the asset. This process will consume the order book, so make sure to take this aspect into account.

D. Execute the Strategy. Execute the strategy by instantly placing orders with the exchange. Continue to place orders with the exchange to take advantage of the arbitrage opportunity as long as the opportunity is available. Fully automate the trading logic to reduce the time per entry and exit of the trade.

E. Do It Again. Stop once the opportunity is no longer available. At this time, it’s time to start looking for a new opportunity to do it all over again.

4.1 Marketing Plan of Blockchain Terminal Cryptocurrency Arbitrage

4.2 Technology of Blockchain Terminal Cryptocurrency Arbitrage

Build a prototype using Node.js. Then, possibly build a final solution using C++. Create relationships with the teams running the exchanges and earn access to private streaming APIs.

4.3 Equipment and Tools

Geo-located co-located servers as near as possible to the exchange servers. 

 4.4 Milestones of Blockchain Terminal Cryptocurrency Arbitrage

Key milestones regarding this business plan are presented below:

1)      Market Research

2)      Identification of customer needs

3)      Gap analysis

4)      Development of prototype and testing

5)      Development of implementation plan

6)      Selection and management of resources for start-up business

7)      Implementation of plan

8)      Working on the development of the platform

9)        Feedback

10)  Evaluation and Improvement

5.0 Company and Management Summary

5.1 Organizational Structure

Blockchain Terminal Cryptocurrency Arbitrage organizational structure will include corporate management, bottom line management, and middle management. Power and authority are delegated in the organization based on hierarchical job positions. Although, responsibilities will be also assigned for monitoring, managing, controlling, leading, and staffing under the wider span of control.  The following hierarchy will be followed in Blockchain Terminal Cryptocurrency Arbitrage.

Moreover, Blockchain Terminal Cryptocurrency Arbitrage will follow up with a strict organizational structure to execute business operations and managing some special projects regarding the trade of digital currencies and cryptocurrencies trade.  Blockchain Terminal Cryptocurrency Arbitrage will be headed by the directors who will report and follow the CEO (chief executive officers). Under the supervision of the director, project managers will work on various task and responsibilities. Key responsibilities of managers are to monitor all tasks done by the team members of each project. Employees and team members will work under the control of project managers and department managers to conduct analysis, develop a new architect, other developer’s tasks, and testers.

5.2 Management Team

The management team will include top level management that will develop plans for further organizational operations. While financial operations will be handled by the managerial staff of the finance department. However, the marketing team of Blockchain Terminal Cryptocurrency Arbitrage will be headed by the managerial staff of the marketing department. Other management team members for Blockchain Terminal Cryptocurrency Arbitrage are Operations manager, quantitative strategist, regulatory compliance officer, and PR managers & marketing manager.        

5.3 Personnel Plan of Blockchain Terminal Cryptocurrency Arbitrage

For the execution of business operations, new recruitment will be made in Blockchain Terminal Cryptocurrency Arbitrage.  Employees will handle their work responsibilities in accordance to with assigned work duties. The following plan will be followed for Blockchain Terminal Cryptocurrency Arbitrage start-up operations.

In accordance with the above personnel plan, each team member will follow up that particular plan for the execution of business operations such as reporting financial statements and managing portfolios for clients.  

5.4 Company History

6.0 Financial Plan of Blockchain Terminal Cryptocurrency Arbitrage

6.1 Revenue/Sales Forecast

In the presented below table projection of revenue is given with annual amounts.    

6.2 Expenses

6.3 Projected Profit and Loss

 6.4 Projected Cash Flow

 6.5 Projected Balance Sheet

 6.7 Business Ratios

According to the presented below business ratio analysis, company is having better liquidity condition as current ratio is greater than 1. Current ratio shows that company can meet its short term obligations by using its current assets rather than liquidating non-current assets. Profit margin ratio less than 1 indicate that company has efficiency to control cost of operations and its expenditures while executing business operations.   

7.0 Appendix of Blockchain Terminal Cryptocurrency Arbitrage