What if I said you could buy something for less than what you could sell it for? Instant easy profit right?
Too good to be true - right?
Today I’m going to tell you exactly how I save 30% buying gold with bitcoins and exactly how I sell the gold to earn 9% profit.
I know when I hear something that I think is too good to be true I ignore it.
Usually this serves me well, but once or twice that attitude has cost me.
Today I promise you this method works.
This particular process won’t make anyone rich overnight, and I’ll explain why, but maybe you’ll identify some tweaks to really make it fly.
Arbitrage is a well-known area of investment. As you might expect, many investors get excited about arbitrage because of the low risk.
If you are like me, we both want profitable low-risk investments. If there were no-risk investments, you and I would all borrow everything we could get our hands on and invest it :)
Of course there is no such thing as a no risk investment. The closest I’ve come to finding a no risk investment was in 2013 when I was running my bitcoin arbitrage bot.
Since then I have been keeping an eye out for additional bitcoin arbitrage opportunities.
Today I’m going to share everything I’ve found with you.
Why I’m Sharing the PurseArb Technique.
What I’m about share took me many hours to learn over the past 5 months. I’m going to share it with you for two reasons:
Bitcoin is the most empowering force since the Internet. The sooner it gains traction the better for everyone in the world.
This purseArb technique has a lot of room for improvement. Maybe you can figure out a way to make serious money using purseArb and let me know in the comments. I will take a look and try it out for you if it makes sense.
First, why did it take so long for me to make this work?
- Understanding how purse worked
- I made a calculation error in my first arb attempt
- I unnecessarily exposed myself to asset price fluctuations
- Purse had some bad UX that hurt my planning and exposed me to additional risk.
What You Need:
Step 1: Find what to buy on Amazon.
I had never bought gold in my life. I had no clue what it went for or if I could even afford to buy gold.
I started my research by searching for ‘gold’ on Amazon. I had no idea there would be so much.
Amazon returned about 12.5 million results for the keyword gold.
From those 12.5 million results I decided to focus on gold coins figuring they would be in my price range and easy to sell.
From there I narrowed it to US mint coins.
And finally I now only buy the ‘gold eagle 1/4 oz’
I only buy the American Gold Eagle Coin 1/4 Oz [Tweet This] because I was unable to get larger dollar sized orders filled through purse.
Lowering the dollar amount gets my orders filled. To get the discount someone else is buying the coins for me in exchange for bitcoin. On the downside the spread is higher when selling the smaller coins. That is important to know because if you do this you’ll need to strike a balance between getting a high discount to sell it profitably and a low discount to get the order filled.
Step 2: Understand the sell
Buying gold coins is no good if they can’t be sold. I had to find somewhere I could quickly sell the gold coins profitably and safely (no fraud, robberies, etc.).
I found three potential candidates searching for “Lansing sell gold.”
I had done business with Liberty Coin and decided to call them to understand what price they would buy gold from me at. Knowing how much they’ll pay for gold let me know the percent discount I would need to get when buying the gold coins on Purse.
When I called Liberty I found out the prices for gold coins on Amazon are HIGH. To make a profit I need a STEEP discount on Amazon. To profit I need to place my Purse orders at a 30%-32% discount.
Here are the good things about selling to a private business (like Liberty Coin):
- They will buy as much gold as I can get.
- I don’t need to worry about them trying to defraud me.
- I can go in and sell anytime they are open.
The one downside:
They need to make a profit when selling the gold to their customers. With the 1/4 oz coin’s high price on Amazon, by the time I sell it at Liberty that has erased the margin. In fact on my first sale I had a loss of $16.29 (6%).
I bought the gold coin for $291.41 and sold it for $275.12. Not a good business move :)
To improve my profitability I’ve begun contacting private gold buyers I know through email and Facebook.
Selling to private gold buyers at $300 per coin and taking a 30% discount through Purse is how I’m enjoying a 9% profit.
The downside of this method is scalability. I don’t expect to ever be able to unload 4-6 coins per day to private buyers.
My next attempt is to try and find another sales channel (maybe Craigslist, but increased risk, and my initial search doesn’t look promising).
My other thought is to connect with people in the gold community, maybe they have tradeshows, etc. where I’ll be able to sell the coins.
##Step 3: Understand Purse
The key to getting the a high return on available capital when arbitraging is a quick cycle time.
It is more profitable to cycle $1K every day at 1% than $10K twice a month at 10%. It is also less risky and requires less capital. Bottom line: you want fast cycle times. [Tweet this]
Purse lets us shorten the cycle time by lowering the discount we are asking for.
Purse tries to give delivery estimates to help customers understand that trade-off. However they don’t give reliable timeframes today.
Since my tweetrant they’ve updated their UX so it IS better now, but I still don’t trust their estimates 100%. I expect they will get even better with more customers and more data.
###Three tips to using Purse profitably:
Lower dollar purchases get filled faster than larger purchases.
For example a 1/4 Oz coin for $374.95 gets filled in a week or two, whereas a 1 Oz Coin for $1,380.95 didn’t get filled in 5 months.
Mitigate risk properly
Initially I was looking for a net increase in dollars. This is hard to do with purse (unless the bitcoin price goes up) because I’m exposed to bitcoin’s volatility the entire time the order is unfilled (days or even months).
By instead looking for a net increase in bitcoin, I am able to remain unconcerned with bitcoin’s volatility by buying bitcoin’s with dollars at the time the Purse order is filled.
Caution: if you aren’t already holding bitcoins this exposes you to risk through bitcoin’s price volatility.
When reloading the Purse wallet use Coinbase transfers to avoid confirmation time delays. I know I hate to start something and then have to make a reminder to come back 10 - 60 minutes later. Using Coinbase gives me instant access to my coins on Purse.
Step 4: Putting it all Together
The final action (if the calculations show it will be profitable) is to go ahead and make the buy through Purse.
Here are the steps:
Find the gold on Amazon.
Add it to a new Amazon wishlist (I tried reusing wishlists, it didn’t work)
Select your address carefully: My first shipment took a few extra days (remember fast times are critical to profitable arb) to arrive because the shipper required that someone over 21 sign the package.
I now have my packages shipped to my office.
- Ensure the list is public.
- Uncheck spoil my surprises.
Copy and past the Amazon wishlist URL into purse to execute the buy.
Wait patiently for the buy to be filled :)
The Backstory - How did I get this idea?
February at the Satoshi Roundtable Jason King and Roger Ver put the idea into my head while we were walking together.
I am an Amazon novice (just buy books sometimes) and had never used Purse at that point.
For those who don’t know, Purse lets bitcoin holders get a discount on Amazon.com purchases.
It does this by taking advantage of the billions in dollars worth of Amazon credits that holders are looking to liquidate. Mechanical Turk workers outside of the U.S. and India are required to transfer their earnings to an Amazon.com gift card.
When I got back home I tried out Purse. Appropriately, my first purchase was The Age of Cryptocurrency. I saved a whopping $1.47 :)
My second test was a purchase for a Pokeball for my son Colin (he is cute and just turned 8 last week. You’ll like him if you ever meet him :))
I also had to research gold buying and selling. I had never even held a gold coin in my hand.
My initial purchase attempts were to buy the 1 oz gold coins. The reason is because Liberty Coin has lower spreads on higher priced items.
Unfortunately my Purse order for the 1 oz American Gold Eagle went unfilled from March through the beginning of August so I gave up.
Switching to the 1/4 oz American Gold Eagle gets my orders filled within a week.
Closing thoughts on PurseArb
Arbitraging gold using Purse has been a fun experiment. I have a good feeling there are ways to scale pursearb up (different products with faster cycle times or higher margins). [Tweet This]
Write your ideas for scaling and your questions in the comments below.
P.S. If you are a software developer you may find my post on bitcoin arbitrage software interesting.