Say there is a 50% arb between two FIAT currency pairs of bitcoin, like BTC/USD vs BTC/KRW in BTC/USD
If this massive inefficiency continues (like in 2017) because of regulatory issues (KYC,SWIFT,BANKS)
where does the money come from?
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For example let's say you find a creative way to arb this inefficiency like back in 2017 a method would've been using corporate business accounts to repeatedly move USD out of Korea to rebuy bitcoin with less AML scrutiny and interest from governments
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but where does the money come from? If you buy BTC/USD@10000 but sell it for 15000 BTC/USD in the BTC/KRW spot market, is the person paying 15000 BTC/USD equiv losing 5,000 BTC/USD? The buyer would only lose if he sold outside the BTC/KRW system for BTC/USD
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In the long term, the buyers who paid the premium end up taking the hit if they hold and the premium fades but if the premium holds like it did in 2017 where is the value being extracted from? buying BTC/USD selling BTC/KRW, buying BTC/KRW nets nothing
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USD>BTC>KRW>USD>BTC arb, the premium is realized by buying USD with KRW from currency exchanges (black market, banks) in the KRW fiat system so as BTC/KRW demand rose so did KRW/USD and if you look back to 2017 you can see it in the charts KRW getting devalued vs USD
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BTC demand up = USD demand up and KRW inflow for KRW banks/markets, u could say the arb was buying USD from Korean banks and dumping KRW on them but the banks aren't losing money, they are generating revenue from fees so if the banks don't lose, buyers don't lose..
who loses?
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on one side, someone is paying 1.5x in KRW for BTC; on the other, someone is selling their BTC for 1x in USD. So at least one of those is losing, relative to hodling.
But note that the net wealth of the crypto ecosystem can increase if BTC goes up!