Why a Crypto-Arbitrage Spread Is Not Net Profit

South African crypto‑arbitrage, once a lucrative cottage industry, has all but vanished. In 2017 traders could buy Bitcoin on overseas platforms such as Kraken and sell it on local exchange Luno for an 8.65 % spread, repeatedly exploiting the R1 million Special Discretionary Allowance (SDA) and the R10 million Foreign Investment Allowance. By 2023 the spread had shrunk to about 2 % and now hovers around 1 % before costs. The decline accelerated after the South African Reserve Bank (Sarb) blocked the Access Bank account of Cape Town‑based arbitrage firm Kastelo in October 2025, a move tied to the firm’s practice of lending money for arbitrage under the National Credit Act.

Background

Crypto arbitrage thrives on price differentials across exchanges, a phenomenon explained by the fragmented liquidity, regional demand variations and latency in price updates that create temporary gaps. As Crypto.com notes, arbitrage involves buying a digital asset on a cheaper market and selling it on a pricier one, with traders relying on speed, automation and risk controls to capture thin margins. Bots, including AI‑driven systems described by the Blockchain Council, scan order books in real time, subtract fees, slippage and gas costs, and execute trades within milliseconds. In South Africa, the practice grew into a cottage industry where individuals used their SDA and foreign investment allowances to move funds abroad, sometimes routing capital through family members to bypass the SDA limit. Companies such as Shiftly offered leg‑work for a share of profits, but regulatory pressure increased when Sarb issued a circular prohibiting the use of South African credit, debit and virtual cards to fund foreign trading accounts, insisting that conversions occur via electronic funds transfers through authorised dealers. Whistle‑blower reports and Access Bank alerts prompted Sarb to issue a blocking order on Kastelo’s account, alleging contravention of exchange‑control rules, particularly the renting of SDA allowances and the provision of loans to facilitate arbitrage. Kastelo argues its lending complies with the National Credit Act and that the Sarb circular does not forbid such loans. The Johannesburg High Court dismissed Kastelo’s urgent application to lift the blocking order, though the merits of the case remain pending.

What happened

The South African crypto‑arbitrage scene began in 2017 when traders could buy Bitcoin on overseas exchanges like Kraken and sell it on Luno an hour later, pocketing an 8.65 % spread. This was repeated as long as the R1 million SDA lasted, after which traders accessed the R10 million Foreign Investment Allowance, provided they held a tax clearance from the South African Revenue Service. By 2023 the spread narrowed to roughly 2 % and by late 2025 it fell to about 1 % before costs, according to Moneyweb. The industry became corporatised, with firms such as Shiftly offering arbitrage services for a share of profits; Shiftly ceased its service in October 2025. In October 2025 the Johannesburg High Court dismissed an urgent application by Kastelo to set aside a Sarb‑imposed blocking order on its Access Bank account. Sarb acted after receiving reports that Kastelo was renting SDA allowances for between R2 000 and R10 000 a year and extending loans to qualified applicants to fund arbitrage, practices it deemed contrary to exchange‑control regulations. Kastelo’s legal counsel maintains the loans comply with the National Credit Act and that the Sarb circular only restricts funding accounts with South African cards, not loans. The court’s decision did not address the substantive merits, leaving the case to be heard on the ordinary roll. Meanwhile, Crypto.com explains that arbitrage profits are thin and eroded by fees, slippage and transfer delays, while the Blockchain Council highlights that AI‑driven bots now filter raw spreads through cost‑adjusted viability checks, underscoring why the South African spread has collapsed.

Market impact

The arbitrage spread that once delivered an 8.65 % profit in 2017 fell to roughly 2 % by 2023 and now sits at about 1 % before costs, according to Moneyweb. The reduction reflects heightened competition, the entry of high‑frequency bots and institutional participants, as noted by Crypto.com, which describes average profit margins as thin and increasingly compressed. The closure of Shiftly’s service in October 2025 removed a corporate conduit that previously took a share of arbitrage profits. Kastelo’s blocked Access Bank account, ordered by Sarb, halted its ability to move funds for arbitrage, effectively curtailing its operational flow. The Sarb circular requires that residents fund foreign trading accounts via electronic funds transfers through authorised dealers, eliminating the use of South African credit, debit and virtual cards for such transfers. These regulatory constraints, combined with the narrowing spread, have driven down the volume of arbitrage activity and reduced the attractiveness of the practice for individual South African traders.

Why it matters

The collapse of crypto‑arbitrage profitability in South Africa illustrates how regulatory tightening and market maturation can erode once‑lucrative opportunities. The Sarb’s blocking order against Kastelo signals a broader crackdown on practices that skirt exchange‑control rules, such as renting SDA allowances and providing loans to fund arbitrage. As Crypto.com and the Blockchain Council point out, arbitrage margins are already thin and heavily dependent on execution speed and cost management; regulatory friction adds another layer of risk that can render the activity unviable. The shift from a cottage industry to corporatised services, followed by the recent shutdown of firms like Shiftly, shows that the business model is unsustainable under current market and regulatory conditions. For investors, the lesson is that apparent spreads must be evaluated after accounting for fees, slippage and compliance costs, otherwise the headline figure can be misleading. The South African experience may serve as a cautionary example for other jurisdictions where exchange‑control regimes intersect with fast‑moving crypto markets.