Bitcoin is traded in numerous places around the world, including many exchanges. However, the asset generally trades at approximately the same value in U.S. dollars in the market, except that some countries trade from time to time based on the underlying prices. How is this possible?

There are many trading products in the crypto space, including bitcoin futures and options (BTC), but how is the price of the actual BTC transaction, known as spot BTC, determined in the crypto market, especially given the large number of exchanges?

The price of BTC at any given moment is really nothing more than a function of the price at which people are willing to buy or sell BTC at that moment, Justin d’Anethan, head of sales at Equos, a digital asset exchange that is part of the Diginex group, told Cointelegraph. So it will vary – very slightly – from fair to fair, he explained, adding:

Of course, market makers and arbitrageurs will take advantage of this difference and minimize it (sell when the price is higher; buy when the price is lower, so the price adjusts naturally). Often, data providers and the exchanges themselves use a composite index of current prices from a number of different exchanges as the basis.

Arbitrage is an aspect of the market that helps maintain the price of bitcoin on all exchanges. If BTC is trading at $50,000 per coin on one exchange and $60,000 on another, people are likely to buy BTC for $50,000, send it to another exchange, sell it for $60,000 and keep a profit of $10,000 per coin. However, arbitration involves a number of factors, including. B. timing of transactions, currency restrictions and bots.

Crypto analyst and trader Filbfilb also sees arbitrage as an important element in determining the spot price of bitcoin in the market. In general, arbitrage bots play an important role in eliminating price gaps caused by unit volume, he told Cointelegraph. They reward people for correcting discrepancies in market prices with profits, he added. Philbfilb explained:

Large volumes of dumping on one exchange, A, which causes the price to fall relative to that on exchange B, will cause arbitrageurs to buy cheaper coins on exchange A and sell them at a higher price on exchange B. This will continue until prices on A and B balance and this possibility is eliminated. This is obviously a simplified example, but it happens literally all the time.

Arbitrage opportunities also existed between bitcoin futures and cash trading, in a strategy alluded to by the creator of the Bitcoin PlanB exchange model. The tactic boils down to going short in BTC futures while buying bitcoin in cash.

Some bitcoin futures contracts, such as those traded on the Chicago Mercantile Exchange, sometimes trade above the asset price at the beginning of their contract term and approach the BTC spot price at expiration. However, this system depends on a number of factors, such as. B. the maturity of the chosen bitcoin futures contract.

Buy and sell orders from participants around the world determine the price of bitcoin in real time, Rob Levy, co-founder of cryptocurrency exchange platform Hxro, told Cointelegraph. All markets are interconnected, from cash markets to derivatives markets (futures, options, swaps), he said, adding:

The most sophisticated market participants, often called liquidity providers or market makers, trade simultaneously on all active exchanges in the world. Advanced trading systems, developed by high-frequency traders, monitor the order books of all major exchanges 24 hours a day.

Levy noted that fast arbitrage is a force that supports similar BTC prices on different cryptocurrency exchange sites.

Moreover, according to a report by investment firm Wilshire Phoenix, the trading of BTC futures on the CME is affecting the spot price of bitcoin. Wilshire Phoenix’s findings […] suggest that CME bitcoin futures contribute more to price discovery than related cash markets, the report said.

In 2017, the CME opened trading in bitcoin futures with cash. In addition to its BTC futures contracts, the Chicago-based trading firm uses the CME CF bitcoin reference rate, a value for bitcoin that takes into account trading data from the BTC spot market.

While there are factors that go into normalizing the price of bitcoin on different exchanges, there are a number of reasons for the overall value of the asset, including its role as a store of value.

frequently asked questions

Why does the price of bitcoin vary from exchange to exchange?

This is because most bitcoin price trackers calculate an average valuation or price of recently traded bitcoins based on the trading history of a known bitcoin exchange. … At the different fairs, supply and demand can be different and the price can vary slightly.

What affects the price of bitcoin?

Languages

Why is the price of bitcoin different on Coinbase?

If one stock market is much higher than another, people can sell their coins on the higher stock market and buy on the lower stock markets to make money. All these sales at the high exchanges drive the price down until it gets near the low exchanges. … So Coinbase’s costs probably keep the price of bitcoins down.

Related Tags:

binance,bitcoin price in different countries,bitcoin price prediction,bitcoin chart,cryptocurrency exchange,bitcoin price difference between exchanges,Feedback,Privacy settings,How Search works,Coinbase,Kraken,Ethereum,Bitstamp,Bitfinex,eToro,See more,crypto price difference between exchanges,best bitcoin exchange