Crypto Arbitrage: Taxation of Gains Between Exchanges
Arbitrage consists of taking advantage of price differences between exchanges to buy on the cheapest one and sell on the most expensive one. The gains obtained have a clear tax treatment.
Tax Treatment of Arbitrage
Each buy and sell operation in the arbitrage cycle generates its own taxable event:
- Purchase of BTC on Kraken at €85,000 → acquisition cost.
- Sale of BTC on Binance at €85,200 → capital disposal.
- Gain = 85,200 − 85,000 − commissions = capital gain.
The net arbitrage gain (minus commissions from both exchanges and transfer costs) is taxed as a capital gain within the savings base.
Complication: Transfers Between Exchanges
To move the BTC from Kraken to Binance, you have to send the crypto. This is not a taxable event (transfer between own wallets), but it does generate a commission (mining fee) that reduces the disposal value.
Full Example:
- Purchase on Kraken: 1 BTC at €85,000 (0.1% commission = €85) → total cost: €85,085.
- Transfer to Binance: network fee 0.0002 BTC (≈ €17).
- Sale on Binance: 0.9998 BTC at €85,200 = €85,183 (minus 0.1% sales commission = €85) → net value: €85,098.
- Gain = 85,098 − 85,085 = €13.
Automated Arbitrage (Bots)
Arbitrage bots can perform hundreds or thousands of daily operations. The tax treatment is the same for each individual operation. The complexity lies in the volume: you need a tool that processes the full CSV.
Arbitrage Losses
If the arbitrage results in a loss (the price moved before completing the cycle, or commissions exceeded the difference), that loss is equally reportable and can be offset against other capital gains.
FIFO in Arbitrage
What complicates arbitrage is FIFO. If you had BTC purchased at different prices before starting the arbitrage cycle, the sale will use the oldest units (FIFO), not necessarily the ones you bought specifically for the arbitrage.
This can make the gain or loss of the arbitrage operation different from what it seems at first glance.
Conclusion
Arbitrage generates capital gains in each complete buy-sell cycle. With many daily operations, the risk of calculation error is high. Tax management software that automatically imports CSVs from all your exchanges is practically essential for active arbitrage traders.