Maybe you’ve noticed that Bitcoin price difference across the crypto exchanges. Here’s an explanation for these price variations.
A quick online search for Bitcoin price reveals that different crypto exchanges value this digital currency differently. Thus, the price at which you buy Bitcoin depends on your chosen platform. Multiple financial news outlets have reported tremendous gains for Bitcoin, especially in 2021, when this cryptocurrency hit a record all-time high price of more than $65,000.
But even then, an online search reveals that different crypto exchanges have varying prices for this digital asset. So, why does Bitcoin price vary across the cryptocurrency exchanges? This article explains Bitcoin price variations in different platforms.
Liquidity
Prominent crypto exchanges like Bitcoin Circuit can record massive trading volumes. Here you can visit the official website of Bitcoin Circuit. However, smaller crypto exchanges can have low trading volumes for the same cryptocurrency. And this variation affects Bitcoin’s price.
Ideally, Bitcoin trade volume affects its price. These volumes fluctuate with market size, regulations, and other factors. In simple terms, people calculate Bitcoin prices based on average estimations of previous transactions. And because trade volumes differ across crypto exchanges, the price varies too.
Bitcoin Pricing Mechanism
Demand and supply primarily determine Bitcoin’s price. According to the network’s protocol, Bitcoin’s reserve can’t exceed 21 million tokens. Thus, miners will deplete Bitcoin’s supply after producing 21 million coins. Therefore, Bitcoin’s demand will supersede supply if this protocol doesn’t change, prompting the price to shoot higher. Nevertheless, Bitcoin’s price can be higher on a crypto exchange if its demand is higher than supply.
Bitcoin’s Market Size
Globally, Bitcoin has markets of varying sizes. Some Bitcoin markets are small and others big. And this, combined with supply variation, causes price variation in crypto exchanges. More people want to buy Bitcoin in a large market. Unfortunately, crypto exchanges may not have enough tokens on sale. Thus, competition for the available Bitcoins could increase their price on one platform with more users. Also, Bitcoin’s demand can be higher in one country than another. If people use crypto exchanges in that country, Bitcoin’s price may be higher than in other countries.
Lack of Standard Pricing
Perhaps, the lack of standard pricing explains the discrepancies in this cryptocurrency’s price across crypto exchanges. Decentralization means Bitcoin doesn’t have a global or standardized price at any time. Also, people don’t peg Bitcoin to any fiat currency like the U.S dollar. Also, Bitcoin doesn’t link to any specific exchange or country. Like other commodities, demand and supply vary depending on the market and time. And this makes Bitcoin prices fluctuate often.
Inefficient Markets
Crypto exchanges have varying Bitcoin prices due to inefficient markets. Ideally, crypto exchanges charge different fees to investors. Also, liquidity and trade volumes in crypto exchanges cause price variation. And fluctuating prices create an arbitrage opportunity. Thus, traders have a difficult time arbitraging differences across crypto exchanges. And this extends the time Bitcoin’s price variation linger.
Fees and Taxes
When buying or trading Bitcoin, users pay additional charges like margins, taxes, and fees in addition to the core price. And different crypto exchanges calculate these charges differently. Consequently, this can increase variations in Bitcoin prices across the crypto exchanges.
Infrastructure Issues
Currently, Bitcoin buyers can’t purchase this cryptocurrency quickly across crypto exchanges. And this makes arbitraging price differences difficult too. Nevertheless, the Bitcoin network might address these issues as its popularity and usage increase.
Final Thoughts
If planning to purchase Bitcoin, consider the best way to research prices on different crypto exchanges. Also, consider Bitcoin’s exchange rates, transaction fees, and other factors that affect its value. Above all, choose a reputable platform for safety purposes. Don’t use a Bitcoin exchange that may close and go down with all the fiat money you load into your account.
