Why do Bitcoin prices differ on different exchanges

Why do Bitcoin prices differ on different exchanges

By bit.team

The prices of cryptocurrencies vary depending on the exchange on which they are traded. Different trading platforms are not synchronized with each other. This means that their prices do not depend on each other.

Factors influencing the value of cryptocurrencies

This is because the price on each platform depends on the traders. This price difference is due to several reasons.

  • Market size

While the total capitalization of cryptocurrencies is of one value (even including those coins that were lost), the real value is less.

Exchanges are a subset of the entire market, so these markets are even smaller, allowing for significant price variation. Cryptocurrency trading may be higher on some large exchanges, such as Bitstamp, GDAX, etc., and lower on smaller exchanges.

This leads to a difference in the currency supply on the exchange, which affects the price. If the demand for a certain currency on the exchange increases, but the supply is limited, in accordance with the law of supply and demand, the price increases.

  • When demand is low, the price goes down

The price is affected by different supply and demand equations on different exchanges. There are various portals, such as CoinMarketRate, that compare prices on different exchanges.

  • Exchange volume

Volumes are limited, since all coins that are mined are quoted only from online exchanges, which is a small set of the total number of coins mined.

People don’t take full advantage of arbitration

The price of cryptocurrencies is based solely on trading, and there is no established generally accepted way to determine the price.

The price is actually balanced between what price a person is willing to trade to part with the currency, and what another person is willing to pay to purchase the same currency. A price transaction occurs between two persons in an exchange after the upper and lower limits are determined, and after that the price will be determined.

Buyers who do not need the currency now are most interested in getting it at the lowest price. Sellers who don’t need cash right away are most interested in getting the highest possible price.

Thus, with a low entry price, people are less serious about how they trade their cryptocurrencies. In fact, most cryptocurrencies are a speculative and irrational market, and each exchange is a small, very speculative and irrational copy of it.

That’s why the spread is so large.

The price, which is derived after all the supply / demand factors and analysis, may still be subject to additional increases or decreases, depending on the country of operations, taxes, and margins.

The movement of money between exchanges is erratic and inefficient, and a lot of collateral is required to perform the task effectively, making it difficult for traders to arbitrate disputes between exchanges. This allows the price difference to persist longer than in a more efficient market.

Thus, volatility, location, speculation, supply and demand, volume, and all related factors have a huge impact on the prices of cryptocurrencies on different exchanges.