Why does this arbitrage opportunity exist and how long will it last?

Arbitrage opportunities typically come about as a result of supply or demand limitations in a market. In the case of Crypto Asset Arbitrage, this is a result of capital controls which limit the supply of crypto assets to South Africa.

Capital controls are government measures taken to limit the flow of financial assets across a country’s borders. In South Africa, this takes the form of annual Foreign Exchange Allowances (see “What is a Foreign Exchange Allowance” FAQ) which limit the amount of funds you can send abroad each year. This effectively increases demand in South Africa for crypto assets, such as Bitcoin, that offer global exposure without making use of these allowances, while also restricting their supply to South Africa. This results in crypto assets selling locally at an average premium of 2-5% compared to overseas markets.

Fortunately, your Foreign Exchange Allowance can be used to purchase crypto assets abroad, whereas companies and other non-natural entities are not allowed to do so. This means only South African individuals/residents are able to capitalise on this exceptionally lucrative arbitrage opportunity which is why it has existed for over 5 years.

Typically, arbitrage opportunities do not last longer than a couple of minutes as limitations are quickly corrected by market mechanics. However, the South African Crypto Asset Arbitrage opportunity is a result of structural limitations, namely capital controls, which cannot be corrected by normal market mechanics. Therefore, this arbitrage opportunity is likely to exist as long as South African capital controls limit the purchasing of crypto assets abroad.