[wc-]

The very large spreads you see here are (usually) caused by some unexpected interruption to the usual stream of arbitrage trades. These unexpected interruptions could be anything from a temporary wallet maintenance to an overloaded exchange not accepting trades for a few minutes to people fleeing an exchange due to insolvency (mt gox). If everything is working correctly, then we might get a wonderful situation where users on one exchange are just going nuts for buying a specific crypto, and then it can be very profitable but also usually short lasting. One example of this was the recent run-up of LTC's price.

When things are running "normally" the arb space is pretty crowded especially amongst crypto-crypto pairs. Things like BTC-USD arbitrage between a USA exchange like GDAX and a Korean exchange are more of a regulatory arbitrage than a trading arbitrage (it takes a lot of work to get set up to trade and withdraw money from Korea to the USA to balance the sell-leg of the arb), so I would ignore those as they are really out of the scope of a HN tech discussion.

I think this site has come up before and I might have commented on it. If you are seeing these spreads and thinking about quitting your day job, don't.

Source: I did quit my day job and paired arbs like this account for about 0% of trading volume we do.

Shameless plug: if you are interested in this stuff feel free to contact me, info should be in my profile.

[dustingetz]

I saw some blogs theorize that nefarious bots are also increasing apparent spread—e.g. painting the tape on gdax to skim from coinbase cash whales—and so little of the everyday trading activity is human, that if you try to arb it, all of a sudden the spread disappears. It even makes sense that the entity responsible for this website is trying to combat effects like this by driving the spread down. What reasons can you think of for someone to make this website?

[wc-]

GDAX bot activity is all: speculative automated trading, arbitrage, or (and most importantly) coinbase's own activity on the gdax exchange. They have to fill orders for all their customers clicking the buy button on their iphone apps. 100k new customers A DAY were seen at bitstamp, the coinbase app was the #1 app in the appstore, that is a lot of retail buying activity. Those buys are then passed to traders / bots that fill them on the exchange so I get that it looks automated and one-sided.

"if you try to arb it, all of a sudden the spread disappears" - well there's a lot of people trying to do the same thing because they think it is easy money and no one has thought of this great idea of buying LTC on one exchange and selling on GDAX, so when your incoming transfer of LTC completes so do a bunch of other transfers all doing the same arb trade (and those are automated and will beat you in the race).

The blogs you are referring to I do not hold in high esteem. I maintain high levels of doubt about exchanges as a whole and realize the extremely high counterparty risk more than most in the space, but their ideas about painting the tape and nefarious bots are misguided at best.