If you have also discovered that the price of bitcoin or other cryptocurrencies happens to appear differently on different exchanges and you have an interest in knowing why it seems so then you’ve come to the right place. Here, We’d show you why the bitcoin prices are different on different exchanges.
Meanwhile, do you know that investors and traders profit from this regard by buying and selling crypto assets across different exchanges with different digital assets value? We refer to this as an arbitrage opportunity. Hence, even people not doing day trading of crypto assets, see arbitrage as a lead discovery, as they profit from it.
Hence, if you compare any crypto across different exchanges at the exact time on any given day, a high chance exists you’d see differences in its price. The difference is usually between 1-2%, but sometimes it can extend to even 4-5% on busy trading days.
Now, how can a single asset trade at two different prices simultaneously? You’d come to learn why the bitcoin prices are different on different exchanges here.
Why the Bitcoin Prices Are Different on Different Exchanges
One of the major facts, why Bitcoin prices are different on different exchanges, is because the markets are not truly efficient. This means the price of digital assets varies slightly across different markets and exchanges due to the different fees the exchanges charge investors. Also, the varying levels of trade volume and liquidity on any given exchange may slightly influence the price. Thus, as earlier pointed out that the varying prices across exchanges create what we refer to as an arbitrage opportunity (buying and reselling of an asset to profit from differences in the asset’s price across exchanges).
Furthermore, short term traders employs this method of trading to make passive profits While professional investors may turn it to a long term profitable businessss.
Meanwhile, below we’ve carefully categorized and explained other factors that make Bitcoin prices appear different on different exchanges
#1. Each Exchange’s Liquidity
The liquidity of each exchange influences the price value of assets there. The liquidity level of the exchange depends on different factors, like the Trading Volume on the exchanges. While the trading volume relies on the number of users investing and trading, as well as each coin’s demand and supply in the exchange. However, the crypto trading prices on different exchanges would appear slightly similar. For instance:
- If Bitcoin’s price on exchange A may be traded at US$ 16,939.31.
- Then, Bitcoin price on exchange B may be traded at US$ 17,222.51.
- The Bitcoin price on an exchange C may be traded at US$ 17,240.10
So, you see how this brings a perfect opportunity to apply the Arbitrage Strategy. Thus, considering the Bitcoin price example above, if you purchase bitcoin from exchange A to sell on exchange B, you will make a profit of US$ 283.20. However, we didn’t consider the administrative fees. While also this method could result in the crypto price returning to same levels across all crypto exchanges.
#2. Exchanges Don’t Update Their Prices At The Same Time
The different prices of Bitcoin or other altcoins on different exchanges may result from the fact that different exchanges don’t update their prices simultaneously. The Crypto assets’ prices displayed on each platform are established on the latest traded price on that exchange.
Therefore one limitation of comparing the crypto prices from various exchanges is that the prices will be developed by the latest trading order. As a consequence, they exist a high chance of the prices not appearing consistent across the board. But they are usually of close value.
#3. Different Currency/Crypto Pairings
We usually compare every cryptocurrency traded on any digital exchange platform with another currency such as the US dollar, Thai Baht, or another digital currency.
Nonetheless, economic and other unforeseen factors can affect the pairing currency and can influence the prices of the crypto value in the exchange.
#4. Cryptocurrency Doesn’t Have A Fixed Median Price
The nature and behavior of the crypto market differ from fiat currencies. Cryptocurrency or Bitcoin has no fixed median price to use as a reference for an appropriate crypto coin’s value.
On the other hand, the value of fiat currency is based on the exchange rate news of each country’s central bank.
Frequently Asked Questions On Why the Bitcoin Prices Are Different on Different Exchanges
Can a cryptocurrency have a fixed price?
Yes, some crypto referred to as stablecoin tries to maintain a fixed or ‘pegged’ price in terms of another asset. An example of such coins is USDT. The cryptocurrency may peg its value to USD at the ratio of 1:1 so that each unit of the stablecoin is worth 1 USD.
Do all cryptocurrencies have a fixed supply?
No, all crypto assets do not have a fixed supply. However, it doesn’t imply that cryptocurrencies with unlimited supply have no value. If not, Ethereum has no fixed supply and still maintains its stand as the second-largest cryptocurrency by market cap.
Why does crypto have no real value?
Some cryptocurrencies have real values. Further from the layman’s narrative, economics defines two essential characteristics for a commodity to have value they include “Utility and Scarcity”.
Scarcity means a limited supply of goods or services. Bitcoin and many cryptocurrencies are limited currencies. Thus, meaning they are just a finite number of the Bitcoin same available.
Accordingly, having the idea to always compare each crypto price from several exchanges is wonderful. It helps you to stay woke and even is profitable if you venture into Arbitrage trading.
To save the stress of singly going through several exchanges to check their prices, many websites offer features where they display the market prices of different exchanges. An example of such a site includes CoinMarketCap. Here, users can simply search for a cryptocurrency of their choice on the search box, then select the “Markets” tab which will appear.
Finally, bitcoin exchanges connect those who have bitcoin and want to sell with those seeking to buy. More so, different exchanges usually have different levels of supply and demand. Therefore their prices have somewhat been different.