Today Bitcoin price is really a hot topic. Everybody follows the rate fluctuations and many news agencies all over the world do their best to tell us, whether BTC has conquered a new peak or stepped back. However, what is often not mentioned is how actually the rates of virtual coins are determined and why do they differ from one exchange to another. The Coin Shark will briefly tell about the key aspects of these differences.
First of all, different Bitcoin rates are rooted in the nature of the cryptocurrency itself. It is to the full extent determined by the market. Nobody actually knows what Bitcoin rate should look like, the price of each particular coin depends on the trading conditions. Moreover, in the network of decentralized Bitcoin every user’s PC is actually a Central Bank. There’s no authority to determine the rate or to be able to influence it.
Different services and trackers that inform us of current Bitcoin rates, usually use the analysis of data on recent transaction history of particular cryptocurrency exchanges. However, the exchange rates are obviously different. Certainly you will not manage to find an exchange where you could buy BTC for a change left after you bought a movie ticket, but the prices can still differ up to several percent which is actually rather significant.
So, why do different exchanges offer different prices? Cryptocurrency exchange is a place where those who want to get rid of their coins and those who want to purchase some meet each other. That’s why the conditions of trade depend on the infrastructure of these places, the number of those who want to make deals and many other factors. Exchange players can have different goals – some want to purchase ВТС to make a fast transaction, others would love to get coins for a long-term investment so they will wait for the best rate.
Talking about cryptocurrency exchanges it is necessary to mention liquidity. The exchange “forefront” (Kraken, Bitfinex, Coinbase, Poloniex, GDAX, etc.) operate thousands of Bitcoin transactions per day, while “runners-up” are happy to have several hundreds or even dozens. So, different transaction volume is what affects the rate of cryptocurrency on particular exchanges. Exchanges transaction fees also influence Bitcoin price.
Well, if different exchanges provide different Bitcoin rates, why don’t buy some at a lower price and then sell it on another exchange? Yes, it is quite possible, however, it is, in fact, rather difficult and often not that profitable. The key difficulties are connected with Bitcoin transfers from one exchange to another. For instance, there are certain exchanges that accept only fiat currency. Anyway, arbitrage is difficult. CNBC also writes about exchange infrastructure “drawbacks” that do not allow users to buy Bitcoin on different exchanges at the same time and transfer coins efficiently.
So, it is actually a natural conditions of decentralized virtual money – different prices for the same coin do exist and the value of cryptocurrencies is determined by supply and demand, as well as by certain features of crypto-exchanges infrastructure.