Do crypto trading bots make money?

Can you make money with crypto trading bots?

In most cases, NO, and I will explain why in this article.

Can we make money with crypto trading bots?

I receive a lot of questions about crypto trading bots.

You probably saw these Youtube ads promising passive income while you sleep with automated trading: The idea is that a small script is going to run 24/7 to do the trading for you. Not only you don’t have anything to do, but it’s also supposed to provide huge returns without taking ANY risk.

A lot of these videos are scam, where they don’t do any trading and they just steal your money.

But beside these scams there are also some real success stories:

Firms like Jump Trading and Wintermute made hundreds of millions from sophisticated algorithmic strategies
And you may have even heard about flash loan arbitrage bots pulling in thousands of dollars per successful trade.

But the reality is that for the average developer, building a profitable crypto trading bot can be challenging. There are technical, financial, and psychological barriers that make it more difficult for solo traders to compete with the big players. I know this from my own experience, as well as talking to many other crypto developers who have tried and failed with automated trading.

So in this article, we’ll dive deep into the key reasons why crypto trading bots are not the get-rich-quick scheme that many people believe. But I’ll also share some advice on how you can actually find success in the world of crypto trading bot, even as an individual.

What are crypto trading bots?

Let’s start with the basics. There are two main types of crypto trading bots:

Off-chain Bots
- Run on centralized exchanges like Binance, Coinbase, FTX, etc.
- A typical strategy is to look for price differences (arbitrage opportunities) between exchanges
- Example: Buy ETH at $2,000 on Binance, immediately sell at $2,010 on Coinbase
- Need API keys, fast internet connection, and low-latency infrastructure
On-chain Bots
- Run directly on the blockchain, interacting with smart contracts
- Execute complex strategies to exploit decentralized finance (DeFi) opportunities
- First example is a flashloan arbitrage bot, where you borrow a lot of money on the blockchain to do an arbitrate between 2 exchanges, where you buy low and sell high in a single transaction
- There are also liquidation bots, which liquidate loans that have insufficient collateral in some DeFi lending protocols
- And a last example is sniping bots, which buy automatically new tokens listed on decentralized exchanges, hoping to get a good price by being very early
- Need to understand blockchain mechanics, gas fees, and transaction prioritization

Regardless of which category we are talking about, off-chain, or on-chain bot, the general idea is that they are programmed to autonomously scan the markets, identify profitable opportunities, and execute trades without human intervention.

So now you understand the basics.

But why can’t you make money with these trading bots? Well, first, you have to understand your competition. Trading is a zero sum game, and if you make money it means somebody loses money…or, the other way around!

The secret world of crypto bot operators (a.k.a MEV searchers)

Yes, some people and firms are making serious money with crypto trading bots.

Let me paint you a picture of what that looks like:

Jump Trading, a Chicago-based high-frequency trading firm, reportedly made over $1.3 billion in crypto trading profits in 2021 alone.
Wintermute, a major crypto market maker, handles billions of dollars in trading volume every single month.
Flash loan arbitrage bots have been known to pull in thousands of dollars per successful trade by exploiting DeFi protocols.

But here’s the reality check – these successful crypto trading operations are:

Highly capitalized hedge funds, proprietary trading firms, and other institutional players
Teams of experienced quantitative analysts, software engineers, and trading strategists
Leveraging sophisticated infrastructure with servers co-located next to major exchanges
Working closely with blockchain protocols and having deep industry connections

So yes, these big companies successfully operate trading bots. But why can’t the small guys also make money?

You are too slow

Speed is everything in algorithmic crypto trading. Let me show you why this is such a major obstacle for individual developers:

For Off-chain Bots
- The price differences that bots try to capitalize on only exist for tiny fractions of a second
- Firms with ultra low-latency infrastructure can execute trades in 1-2 milliseconds
- In contrast, a bot running on a regular home internet setup might take 50-200ms to even detect the price difference
- By the time your bot places the trade, the opportunity has already disappeared
For On-chain Bots
- To profit from blockchain-based strategies, you need to get your transaction included in the next block
- You’re competing against high-frequency traders and other bots that are directly connected to miners’ mempool
- These competitors can pay premium gas fees to ensure their transactions are processed first
- Example: A flash loan arbitrage opportunity appears – the pros will win 99% of the time because their transactions get priority

In the world of automated crypto trading, speed is not just an advantage, it’s an absolute necessity. If your bot can’t react and execute in the blink of an eye, you simply won’t be able to capture the profits before the window closes.

You don’t have the right connections

I know, it sounds weird. Why do you need to connections for trading bots.

This is especially important for on-chain bots. When you run an on-chain bot, you will need to have your transactions mined on-chain. And to make sure the transaction is mined on time, like I said before, one solution is to pay a huge fee to miner. But it’s bit risky, because even though you pay the miner fee, there is no guarantee that your transaction will actually make money.

A better solution is to partner with a miner so that you pay them only if the transaction makes money. And since you are their partner, they have an incentive to mine your transaction at the beginning of a block, before everybody else.

But in order to do that, you need to convince a miner to partner with you. And it’s easier to do that when you are a big company.

Now, there are some initiatives to democratize the access to miners, like Flashbots.

But currently, you still have a big advantage if you are a big trading company.

Everyone is copying the same trading bot strategies

“Okay, but what if I just copy the strategies used by the successful trading firms?”

Here’s the problem with that approach:

Profitable trading strategies have a limited capacity – there’s only so much capital they can absorb before the margins start to decline
As more competitors adopt the same strategies, it leads to lower profits for everyone involved
A great example of this is the rise and fall of MEV (Miner Extractable Value) sandwich attacks in DeFi:
- In 2020, when there were just a few bots executing these attacks, they were pulling in $50,000 or more per successful trade
- But as more and more bots joined the fray, profit margins plummeted to the point where many sandwich attacks are now unprofitable
By the time a trading strategy becomes public knowledge, it’s usually too late – the edge has already been arbitraged away

The reality is that the most lucrative crypto trading strategies are often closely guarded secrets. And even if you manage to reverse-engineer them, you’re still competing against teams of experts who are constantly iterating and improving their models.

You don’t have enough resources

It’s not just a matter of technical superiority – successful crypto trading operations also have massive financial and operational advantages that individuals can’t match.

Professional Crypto Trading Firms Have
- Teams of mathematicians, computer scientists, and experienced traders
- Dedicated risk management specialists to monitor positions and limit downside
- 24/7 monitoring and maintenance to ensure their bots are running smoothly
- Millions or even billions of dollars in capital to deploy across multiple strategies
The Individual Developer Reality
- Limited time, expertise, and bandwidth – you’re a one-person shop
- No backup or support when things inevitably go wrong with your bot
- Small capital means you can only trade with tiny position sizes
- Limited resources to withstand losses or iterate on failing strategies

The sad truth is that crypto trading is a business of economies of scale. The big players can afford to have redundant infrastructure, run dozens of strategies in parallel, and take bigger risks in pursuit of outsized returns. You, as a solo developer, simply can’t compete with that level of resource advantage.

Psychological challenges for crypto trading bots

Even if you somehow manage to overcome all the technical and financial hurdles, there’s still the human element to contend with – your own psychology.

Emotional trading decisions can be the downfall of even the most sophisticated algorithmic strategies. Things like:

Holding on to losing positions for too long, hoping for a turnaround
Doubling down on failed strategies out of stubbornness or pride
Overconfidence leading to overly aggressive

And as a solo trader, it’s easier to have some blindspots:

No team to challenge your assumptions or spot your cognitive biases
Lack of peer review on your code and models means bugs or flaws can slip through
No risk manager to stop you from making impulsive, high-risk decisions

The psychology of trading is an area that even the biggest firms invest heavily in. As an individual, maintaining that level of emotional control is more challenging.

Regulations and compliance for crypto trading bots

Another key factor that individual developers often overlook is the regulatory landscape of crypto trading.

Centralized exchanges like Binance and Coinbase have strict know-your-customer (KYC) and anti-money laundering (AML) requirements. Getting approved for API access and institutional-grade accounts can be a major hurdle.

Even a minor compliance misstep can result in your bot getting blacklisted, frozen funds, or worse – legal trouble.

The big crypto trading firms have entire teams of compliance experts to navigate these murky waters. As an individual, you simply don’t have the resources or expertise to keep up.

Conclusion

Is it impossible to make money with crypto trading bots? No, not at all. But you need to have a clear-eyed understanding of the realities involved.

Successful crypto trading is not a get-rich-quick scheme, nor is it something you can do as a side hustle. It requires a full-time, long-term commitment, and even then the odds are stacked against the average developer.

So what can you do instead? Here are a few suggestions:

Start Small and Manage Expectations
- Focus on just one specific market or niche to begin with
- Use small amounts of capital and gradually scale up
- Understand that it will take months or even years to become consistently profitable
Find Your Unique Edge
- Look for unexplored or underserved areas of the crypto ecosystem
Collaborate with Other Developers
- Join forces with a team of like-minded individuals
- Combine your expertise to create more robust trading strategies
- Provide mutual support and challenge each other’s assumptions

The most successful crypto developers I know didn’t get rich from trading bots. Instead, they made money buy learning learning Blockchain development and selling their service, either as a Freelancer or as full-time employee.

That’s the path I’d recommend for anyone looking to build a sustainable career in this space. And if you want to get started as a Blockchain developer, checkout this free roadmap, where I will tell you what to learn, and how to find your Blockchain job.