Looking for the price of Bitcoin
The world is fixated on the price of bitcoin, clearly due to its amazing rise and fall over the past year or so. The problem is, if you look carefully, you will notice that different exchanges quote different prices for bitcoin (BTC
US exchanges have different BTC prices
BTC prices based on exchanges
Why are the prices different?
Like everything else, the price of bitcoin is a function of supply and demand. In a frictionless world where everyone has exactly the same information at the same time and all liquidity can be gathered centrally, the two would meet in a uniform equilibrium. However, the bitcoin market (or any other crypto) is full of sources of friction.
For example, order book depth and liquidity can vary between exchanges and even trading pairs within a single exchange. If a particular exchange has little depth, it cannot absorb large orders without experiencing significant price drift.
Despite its growth in recent years, the crypto market is still far more fragmented than the traditional financial sector. This makes it difficult (but not impossible) for arbitrageurs to move money around the world and take advantage of price deviations, which will eventually bring prices back into line. One of the best examples of this fact is the “Kimchi Premium”, which represents the difference in price between bitcoin on Korean exchanges and the rest of the world, which tends to be slightly less correlated with the rest of the market as a result of relatively limited investment opportunities for retailers in the country. Historically, there has been significant volatility. For example, during the height of the ICO craze back in 2017, the premium reached 40%. It also increased during the bull market in the spring of 2021. But if you look at the chart today, it is far more muted.
BTC: Korean Premium Index
Korean BTC Premium Index
In addition, sometimes exchanges become first movers (in both directions) due to specific market positioning. For example, Coinbase has become a place of choice for institutional buyers. Therefore, crypto-watchers (especially bitcoin) have begun to pay special attention to movements in the price of Coinbase, as it can signal whether institutions are buying or selling the asset. These observations can provide directional guidance to traders. In fact, tracking the difference in price between Coinbase and Binance (which is synonymous with retail traders) has become popular. Based on this chart, you can see that it has recently turned negative, suggesting that bitcoin may be facing some downward pressure. CryptoQuant calls it the Coinbase Premium Index.
BTC: Coinbase Premium Index
BTC: Coinbase Premium Index
That said, this is just the beginning as these observations come from directly looking at prices on exchanges.
Non-traders will get a different number when they Google the price, and adding to the complexity is the fact that many indices and benchmarks have their own unique ways of calculating the price that emphasize the price of different stock exchanges. products and other financial products.
Finally, this article only discusses prices in USD or USDT
Why it matters
While there will likely never be a single price for bitcoin because markets inevitably have friction, just as there is no single price for gold, it is important to continue working towards a convergence of market prices. Large price differences are a symptom of inefficient and immature markets. The more evenly distributed liquidity is in the world, the less exposed it will be to allegations of fraud and manipulation, which will create a more level playing field for all investors. This could help get a bitcoin ETF over the finish line in the US
A little variation is manageable, a lot must be reduced.
