FTX Contagion Hits Crypto SA Arbitrage Market

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Several crypto-arbitrage providers in South Africa suspended arbitration services this week after clients began cutting ties with Silvergate Bank amid news that it filed for liquidation. volunteer in the United States this week.

There’s some good news about that: the crypto arbitrage premium jumped to 2.4% at one point this week, a more than three-fold jump from two weeks ago, while around R1 billion per month in crypto arbitrage trades have been reversed. The arbitrage premium on Wednesday was around 1.6% before fees.

Arbitrage trading involves buying cryptos in the United States and selling them in South Africa for a profit. Cryptos such as bitcoin (BTC) or US dollar-backed stablecoins like USDC typically trade at a premium in South Africa, due to currency restrictions that make these assets scarce compared to free-flow countries. currencies.

SA Suppliers

Crypto arbitrage has become a popular means of making relatively low-risk profits for South Africans with access to foreign currency allocations.

Dooya and Future Forex are among those who hit the pause button on their crypto arbitrage services. Currency Hub says its services are relatively unaffected because it has not used Silvergate as a banking partner for crypto arbitrage.

The Silvergate crisis caused huge upheavals in the arbitrage market, as they were the main banking partner of Circle, which most arbitrage service providers used as a fiat-to-crypto gateway, says Kyle Dowie, CEO by Dooya.

Circle no longer accepts any payments made through Silvergate, which has effectively forced many arbitration firms out of business and caused the arbitration premium to increase significantly over the past week.

Although Dooya used Circle as a fiat-to-crypto gateway, our team has been working tirelessly since the news broke to find an alternative solution for our clients to continue trading. We were able to implement our new solution within days and are back to business as usual with our customers enjoying the increased profits while they last.

Said David Farelo, co-founder of Currency Hub: We weren’t using Circle as part of our arbitration service, so we weren’t affected by the high-profile issues at Silvergates. For us, it’s pretty much business as usual. In fact, the rise in the arbitrage premium over the past week has been a great time to take profits.

Circle is the issuer of USDC, a digital dollar known as a stablecoin and the fifth largest crypto with a market capitalization of $43.5 billion.

Most SA arbitrage providers have deposited funds with Silvergate, in which case Circle would use those funds to mint USDC stablecoins.

Harry Scherzer, CEO of Future Forex, said Silvergate and rival Signature Bank have both announced they will ban third-party payments to customers, under pressure from US regulators.

None of our clients’ funds have been affected and we have closed all arbitrage trades for our existing clients, he says. We are looking at a number of options while prioritizing the safety of our clients’ funds.

The Fall of Silvergate

Silvergate Capital, listed on the New York Stock Exchange, saw its price plummet from a high of $22 in February to $5 this week. The bank last week warned it would delay publishing its annual report and there were doubts about its status as a going concern. Last week, it announced it would discontinue its Silvergate Exchange Network, which allowed customers to make crypto or US dollar transfers around the clock, disrupting traditional banking which can take days to settle a transaction. .

Several other crypto companies have started to distance themselves from Silvergate. Coindesk reports that Coinbase, Circle, Paxos, Crypto.com, Bitstamp, Cboe Digital Markets, Galaxy Digital and Gemini have all announced that they will suspend Automated Clearing House (ACH) transfers and other business transactions with the bank. .

Silvergate billed itself as a crypto-friendly bank, but the crash of the FTX exchange forced it to sell $5.2 billion in assets in January, posting a loss of $718 million on these sales, in order to consolidate its balance sheet and liquidity.

FTX’s sister company, Alameda Research, was one of its biggest banking clients.

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