Arbitrage Trading: How It Works (And Why 2025 Changed the Game)

I still remember halving night this past April. I had a tidy cross-exchange arb lined up… until Bitcoin fees went ballistic. The mempool turned into a knife fight, and the “safe” spread I’d penciled in got obliterated by fees. I switched on a dime—closed the arb legs and pivoted into a funding-capture trade using stablecoins. The lesson? Arbitrage isn’t just math. It’s timing, rails, and the regime you’re trading in.

Anyway—back to the point.

What is arbitrage trading?

Arbitrage trading is about extracting small, low-risk edges from price discrepancies—without taking big directional bets. In crypto, that commonly means:

• Cross-exchange arbitrage: buy cheap on Exchange A, sell high on Exchange B.

• Cash-and-carry (spot–futures) basis: long spot (or an ETF) and short a futures contract to lock in the basis.

• Perp funding capture: short the perpetual when funding is positive; long when it flips, harvest the carry.

• Triangular/DEX arbitrage: rotate across pairs (e.g., BTC/USDT → ETH/USDT → ETH/BTC) or between DEX pools when pricing is off.

• ETF vs. spot/futures dislocations: use creations/redemptions and futures to tighten spreads (more advanced, capital intensive).

It sounds clinical. It isn’t. The best arbs show up at 2 a.m., right when liquidity thins and someone fat-fingers a block of size.

Why it matters now (2025)

Three big structural shifts changed crypto arbitrage in the last 18 months:

1) U.S. spot Bitcoin ETFs launched on January 10, 2024. That one decision institutionalized spot liquidity and altered the basis landscape overnight. It tightened some spreads—and at times, created new ones. (forbes.com, theblock.co, techcrunch.com)

2) Bitcoin’s fourth halving hit block 840,000 on April 19–20, 2024. Fees briefly went sky-high as Runes launched, making on-chain legs punishing—and forcing arbers to route on L2s or centralized venues. For a short window, fees per transaction ran shockingly high before normalizing. (forbes.com, investopedia.com)

3) The U.S. finally passed a federal stablecoin law in July 2025 (the GENIUS Act). Clearer rules plus growing supply made stablecoins faster, safer “cash legs” for arbs—and, frankly, the de facto settlement currency of crypto. Market cap has pushed into the $230–250B range, with USDT and USDC dominating. (mayerbrown.com, coindesk.com)

Real spreads, real talk

• CME basis: In late 2024, annualized basis ripped toward the teens and beyond. By mid‑2025, the annualized CME basis cooled toward ~4–6%—not dead, but a different game than the early ETF days. When flows surge, the basis pops; when flows stall, it compresses. I’ve watched that cycle play out more than once this year. (theblock.co, blockchain.news, cointelegraph.com)

• Funding rates: Post‑ETF, funding stayed mostly positive but less frothy, punctuated by short bursts around headline risk. Funding capture is alive, just more tactical—days not months. (theblock.co, odaily.news)

• Fees and rails: On halving weekend, on-chain BTC fees briefly made “simple” cross‑exchange arb untenable. If your solver couldn’t reroute to L2s or central limit order books, you missed it. (forbes.com)

The L2 kicker

Ethereum’s 2024 Dencun upgrade with EIP‑4844 cut L2 data costs, making DEX‑to‑DEX arb cheaper and faster—particularly for small to mid‑size tickets. Your edge is often just not paying mainnet tolls. (coinmarketcap.com)

How to take advantage (without getting wrecked)

Here’s the field guide I actually use.

1) Cash‑and‑carry (spot–futures) basis

• Idea: Buy spot BTC (or a spot ETF), short a dated futures contract, hold to expiry, capture the basis.

• Do this when: Futures premium is meaningfully positive annualized and your financing is cheap.

• Watch out for: Shrinking basis after you enter, borrow costs, margin calls, ETF tracking differences, and exchange fees. In 2025, I won’t chase this below mid‑single‑digit annualized unless I get superior financing or rehypothecation perks. (coinbase.com, xt.com)

2) Perp funding capture

• Idea: Short perps when funding is rich; delta‑hedge with spot or ETFs. Flip long when funding is negative.

• Do this when: Funding > ~0.03% per 8h across multiple venues for several windows. The persistence matters more than a single juicy print.

• Watch out for: Funding regime shifts, index misprints, and moving your hedge across venues with different fee tiers. Funding spikes around macro and ETF flow days, then fades. (theblock.co, odaily.news)

3) Cross‑exchange arb

• Idea: Same asset, different venues, instant capture.

• Do this when: You have pre‑positioned inventory or fast credit lines on both sides.

• Watch out for: Withdrawal delays, fee events (hello, halving night), and spoofing that vanishes when you hit it. I keep “hot” stables on multiple venues—GENIUS-era clarity made this feel less like juggling chainsaws and more like pro routing. (mayerbrown.com)

4) Triangular and DEX arb

• Idea: Exploit mispricings across three pairs or between AMMs and order books.

• Do this when: L2 gas is quiet and blockspace isn’t a bar fight.

• Watch out for: MEV sandwiched fills, pool fees, and slippage under size. Post‑Dencun, I run more of these on L2s for cost control. (coinmarketcap.com)

Quick wins and pro habits

• Pre‑fund your venues. Don’t wait to transfer when the spread shows; it’ll be gone.

• Use stablecoins for the “cash leg.” They’re not an inflation hedge—Bitcoin is the asset people call a hedge—but stables are the grease that makes multi‑leg trades work. (coindesk.com)

• Track basis by tenor across CME and offshore; the signal is in the slope.

• Size to venue depth. A 5‑bp edge on a thin book is worse than a 2‑bp edge you can do 10x.

• Net your fees. Maker rebates, withdrawal schedules, and VIP tiers decide whether a “win” is actually a loss.

Table: Bitcoin halving history and the “opportunity pulse”

Halving | Date (UTC) | Block | Reward Cut (BTC)

—————————————-

1st | 2012-11-28 | 210,000 | 50 → 25

2nd | 2016-07-09 | 420,000 | 25 → 12.5

3rd | 2020-05-11 | 630,000 | 12.5 → 6.25

4th | 2024-04-20 | 840,000 | 6.25 → 3.125

I’ve learned to treat halving windows as regime shifts: fees, flows, and spreads behave differently. The 2024 event proved it—fees spiked, then normalized, and a bunch of arb edges migrated off-chain or onto L2s. (forbes.com)

FAQs traders actually ask

How long do crypto cycles last?

No fixed clock. Halvings are a four‑year anchor, but liquidity cycles can front‑run or lag them. ETF flows and stablecoin supply surges created mini‑cycles inside the bigger one these past two years. (forbes.com, coindesk.com)

Are stablecoins an inflation hedge?

No. Stablecoins track the dollar. They’re a settlement tool. If you’re hedging inflation, that’s a separate thesis—often Bitcoin or real‑world yields. For arbs, stables are your neutral ammo. (investopedia.com)

What blew up my “risk‑free” arb?

Fees, latency, borrow costs, counterparty risk, and rule changes. I’ve had perfect spreadsheets dissolve because a withdrawal queue jammed or a funding switch flipped negative mid‑cycle. The edge is in execution, not the idea.

Why I care (and what I use)

From what I’ve seen, the best arbitrage in 2025 isn’t about swinging for home runs. It’s stacking dependable carries and being ruthless about fees and rails. That’s why I lean on tools like vtrader.io to watch spreads, funding, and gas in one screen—and to route orders to where the liquidity actually is. Honestly, it surprised me how much “ops” changed my P&L.

Bottom line: arbitrage still works. It just rewards the trader who adapts. Halving reshaped fees. ETFs reshaped the basis. Stablecoin law reshaped settlement. If you can pivot as regimes change—and keep your legs cheap—you’ll keep finding edges while everyone else complains the game is “too crowded.”

Sources:

• https://www.forbes.com/sites/dereksaul/2024/01/10/sec-approves-spot-bitcoin-etfs-first-crypto-funds-of-kind/

• https://www.theblock.co/post/271324/the-sec-said-it-has-approved-proposals-for-spot-bitcoin-etfs-on-an-accelerated-basis

• https://www.forbes.com/sites/colinharper/2024/04/22/bitcoin-transaction-fees-hit-record-levels-after-halving—heres-why/

• https://www.investopedia.com/cryptocurrency-market-news-transaction-fees-spike-bitcoin-halving-8636756

• https://www.kaiko.com/reports/perps-are-coming-to-america

• https://www.coindesk.com/research/stablecoins-and-cbdcs-report-june-2025

• https://www.congress.gov/bill/119-congress/senate-bill/1582/

• https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us

• https://coinmarketcap.com/academy/article/what-is-eip-4844-a-quick-guide-for-beginners

• https://www.theblock.co/post/325727/bitcoin-futures-basis-yields-leverage-unwind-risk