The fact that bitcoin is a decentralised digital currency, there is no standard or worldwide bitcoin price at any one moment is the fundamental reason for price differences between exchanges. It is neither tied to a government or an exchange nor is it tethered to the USD or any other fiat currency. Supply and demand change based on the time and market, as they do with other commodities, and the price of bitcoin swings as a result.
Pricing of Bitcoins
To continue our topic, bitcoin prices are essentially a function of demand and supply variables. The supply of bitcoins is finite at any one time. The total number of bitcoins that may be mined is 21 million. It would be depleted after all of them had been extracted. So, in essence, demand is the determining element in pricing. When there is a limited supply, the higher the demand, the higher the price, and vice versa.
Take notice of how this differs from the price of a stock. Demand and supply, without a doubt, decide share prices in the end. But the truth is that when you buy a stock, you’re essentially purchasing a piece of a company’s cake. This company’s position, productivity, quarterly results, administration, business, and overall economy all have the potential to impact the share price. With bitcoins and other cryptocurrencies, though, things aren’t quite the same. There’s nothing there but demand, excessive exuberance determined by popular emotion. That is all there is to it. There is no underpinning, no foundation, nothing.
Who Sets Bitcoin’s Price?
Bitcoin’s value is influenced by the same market factors that affect the value of any other item or service. If there are more buyers than sellers, prices are likely to rise. When there are more buyers than sellers, the price tends to drop. The stock market, real estate, and most other open markets work in a similar way. With approximately 19 million coins minted, Bitcoin has a fixed maximum supply of 21 million coins. This idea is analogous to the concept of outstanding stock in the stock market.
It’s possible that different bitcoin values are listed on various exchanges. Because some exchanges operate separately from the open market and only serve their members, prices may differ slightly from the broader market. This can be advantageous since you may be able to purchase bitcoin without having to pay network costs, which can be more than the exchange fees. Moreover, on some exchanges, bitcoin’s price varies based on a “spread” – the difference between the buy and sell prices – which could cause its price to be greater or lower than the current price.
Factors That Could Impact Bitcoin’s Price
- Because Bitcoin is a one-of-a-kind asset that is still in its infancy, its future is often seen as unclear. Despite the fact that it’s been around for a decade, it’s still a Wild West frontier in many ways, with future restrictions unpredictable. While it’s feasible that bitcoin’s value would rise over $100,000, it’s also possible that it may go below $0.
- Government action is expected to have the greatest influence on bitcoin’s price. Regulatory authorities in the countries may enact new rules or regulations that significantly restrict bitcoin, if not outright ban it.
- The Federal Trade Commission, the Commodity Futures Trading Commission, and the Securities and Exchange Commission are the key federal authorities to keep an eye on when it comes to cryptocurrency regulation. Because bitcoin is still unregulated, it lacks the same legal and privacy safeguards as accounts and securities denominated in US dollars.
- The price of bitcoin can also be affected by external factors. Elon Musk, the CEO of Tesla, has had an influence on crypto market pricing, for example. Catherine Wood, the CEO of Ark Invest, is another prominent Bitcoin supporter who may be able to assist the market rise. Furthermore, bitcoin whales, or early investors who amassed a substantial bitcoin holding, might sway the markets by entering a large transaction.
- It’s critical to recognise that bitcoin is a very volatile and dangerous investment. While you may acquire bitcoin and make a lot of money, you also run the chance of losing a lot of money. Most individuals should only invest in bitcoin with money they can afford to lose.
Reasons why the bitcoin price differ from one exchange to the other
No common way to price bitcoins
This factor states the reality that bitcoin prices are determined solely by supply and demand. And because these characteristics vary between exchanges, so do the pricing. Nobody knows how much bitcoin is supposed to be worth. There is no global price standard for cryptocurrencies. It is not tied to any other currency because it is decentralised digital money. It just calculates its price based on the current market emotions.
Size of the market
Markets are not the same size all across the world. Some marketplaces are large, while others are modest. As a result, there would be a supply discrepancy as well. And it’s a no-brainer that with steady demand, reduced supply equals higher pricing and vice versa. That is why Bitcoin prices in India are higher than their international counterparts. Since there are relatively few bitcoin sellers in this market, and everyone wants to get their hands on some bitcoins. And you can’t put a price rise at bay when demand surpasses supply.
In addition to the volume of trades, Bitcoin prices are also influenced by them. But these quantities vary depending on the size of the market, the presence of restrictions, and other factors. Bitcoin prices are, in essence, determined as an average estimate of recent transactions. As a result, prices fluctuate among exchanges due to volume differences. Furthermore, some large traders (commonly referred to as “whales”) favour certain exchanges based on vested interests, which can adversely affect volumes and prices.
Fees and Taxes
Other expenses, including taxes, transaction fees, and margins, are added to the raw price of bitcoins. And all these fees differ from one exchange to the next. It further accentuates the price disparity in bitcoin.