Since 2009, Bitcoin, the pioneering cryptocurrency, has captured the hearts of investors, individuals, and institutions worldwide. It is a financial asset that can be accessed from virtually anywhere in the world.
As Bitcoin keeps rising and going global, there is also a rise in the existence of multiple Bitcoin markets. These markets, represented by various cryptocurrency exchanges, facilitate the buying, selling, and trading of Bitcoin. However, these markets often showcase differences in the price of Bitcoin at any given moment. These discrepancies raise an important question: Why is the price of Bitcoin different in markets around the world?
It might interest you to know that Bitcoin has no standard pricing. The no-standard pricing is because there are different people trading on different Bitcoin platforms or marketplaces at the same time.
Cryptocurrencies like Bitcoin are bought and sold on different online marketplaces. However, the prices of these cryptocurrencies can be different on each platform. This is because these markets do not work together to set the same price. Instead, each market decides how much they want to charge for a cryptocurrency based on what people are willing to pay for it.
Also, these market prices are influenced by some factors such as supply and demand, arbitrage, market sentiments, and exchange features.
Just like other asset classes, the basic principle of supply and demand also affects Bitcoin’s prices in the market. There will only ever be 21 million Bitcoins in existence, making it a scarce digital asset. When something is scarce and in demand, its price tends to rise, and its increase in price is also determined by each market platform where Bitcoin is traded.
There are marketplaces that do not buy or sell Bitcoin rather they serve as a connection between the buyers and sellers. In other words, they connect the two groups. This interaction has a direct impact on the price of Bitcoin on the platform, and it can play out in two scenarios: Excess Supply and Strong Demand.
In excess supply, there are more users looking to sell Bitcoin (supply) than there are users looking to buy it (demand), causing the price of Bitcoin to drop. While in strong demand, there are more users wanting to buy Bitcoin (demand) than there are users willing to sell it (supply), causing the price of Bitcoin on the platform to rise.
Arbitrage is a trading strategy where traders exploit price differences between different markets or exchanges to make profit. Here is how it works:
1 BTC is trading at $27,000 at Exchange A while 1 BTC is trading at $25,000 at Exchange B. Some traders will purchase at B and then sell at A giving themselves a $2000 profit.
When the price of Bitcoin is different on two exchanges, arbitrageurs buy it where it's cheaper and sell it where it's more expensive. The more traders jump in to do this, the lesser the chances of more profitable opportunities leading to higher prices. All these contribute to temporary price divergences.
In the world of Bitcoin, news and events hold a very strong influence on Bitcoin prices across various markets. Take, for instance, a scenario where a big company like Apple announced that it would start accepting Bitcoin as payment. That's big news! People would get excited, and more might want to buy Bitcoin. This news will lead to an increase in demand which will in turn affect the price of Bitcoin. This will also culminate into different marketplaces having different Bitcoin prices.
Conversely, if there’s a security breach at an exchange, people will get nervous and sell their Bitcoins. Selling their Bitcoin leads to a drop in price across exchanges where Bitcoin is traded.
Also, what people say and share on social media and online forums can have a huge impact on how others feel about it. And those feelings can ultimately drive the price of Bitcoin up or down in the market.
Some exchange-specific factors affect the price of Bitcoin across exchanges. For example, trading fees can affect the price of Bitcoin. If an exchange charges high fees for buying, you might end up paying a little more for your Bitcoin compared to another exchange with lower fees. Those trading fees can make a difference in the overall price you pay.
Another factor is liquidity. Liquidity is like the speed at which you can buy or sell Bitcoin without affecting the price much. Exchanges with higher liquidity tend to have more stable prices because you can trade larger amounts without causing big price swings.
Another factor is security. When an exchange has a reputation for being secure and reliable, more people will want to use it. When a lot of people use an exchange, it can affect the demand for Bitcoin on that platform, which, in turn, can affect the price. However, if an exchange has security issues, most people wouldn’t want to go there. That loss of trust can lead to a decrease in demand and potentially a drop in the price of Bitcoin on that specific exchange.
Bitcoin markets show different values because they operate differently. Also, factors like demand and supply affect each market differently.
There are several reasons for this such as trading fees, liquidity, and even market conditions.
