Bitcoin is the world’s most popular cryptocurrency, given so many people keep investing in it. Since people have sufficient trust in Bitcoin, it’s sold in many parts of the world and traded at numerous exchanges. However, you’ll be surprised to know that Bitcoin is sold at almost the same price everywhere.
The crypto market is full of different assets, securities, and traded products. So, what keeps Bitcoin’s price the same. How is the value of transactable Bitcoin or spot BTC determined in the crypto exchange? Let’s explore these questions and determine how Bitcoin’s price remains the same across different exchanges.
Before we understand the mechanisms behind the comparable prices of Bitcoin, allow us to explain a concept you might not know: arbitrage. Arbitrage is the process of buying similar assets from different markets to take advantage of the price difference. Many investors use this strategy to generate profits as this indeed is an intelligent strategy.
When an investor is in the market to trade some assets, they analyze the market thoroughly to study how much the same assets are priced. They begin buying those assets and selling in different markets to earn sufficient profits. Arbitrage has become a common strategy to implement amongst frequent investors as it helps them increase their net worth.
How Is Bitcoin Prices Similar Across Exchanges?
Since you’re familiar with the concept of arbitrage, we can begin explaining how Bitcoin’s prices are similar across different exchanges. Arbitrage has a considerable role in Bitcoin’s prices remaining the same. Arbitrage is e of the few aspects that help the crypto market sell Bitcoin at a stable rate. Crypto-runners are fully aware of people implementing the arbitrage approach, which is why they try their best to price Bitcoin similarly everywhere.
For example, if Bitcoin in one market is sold at $70,000, and the other sells it for $80,000, people can easily navigate both markets to earn a profit of $10,000. Investors will take advantage of this price gap and sell the $70,000 BTC in the market where it’s sold for $80,000. Bitcoin prices are kept similar so that its value remains the same in every crypto market, preventing people from making unfair profits on their BTC.
Bitcoin Doesn’t Have Standard Pricing
Another reason Bitcoin’s price remains the same at every exchange is its decentralization. Bitcoin is an independent cryptocurrency that isn’t linked to USD or any other fiat currency. Bitcoin is one digital currency that’s free from any economic factors. Since Bitcoin isn’t affected by any economy, it’s priced similarly everywhere.
The decentralization factor helps Bitcoin not to have a standard pricing system. Bitcoin’s price always depends on its supply and demand, ignoring any aspect that can play a part in its varying prices across different exchanges. As long as the demand and supply fluctuate, Bitcoin’s prices will too. However, the fluctuation will also be the same everywhere. No matter the country or exchange, there will be the same price dip everywhere. The same can be said for price surges.
The Challenges of Valuing Bitcoin
A major issue with Bitcoin is valuing it adequately. As mentioned earlier, there’s no unit of measure to do so, making it more challenging to determine the world’s most famous cryptocurrency’s value. Many crypto analysts have stated that Bitcoin’s valuation depends on how efficient a medium of exchange it becomes. Bitcoin’s ability to identify as a strong medium of exchange can then determine how significant its value is.
Bitcoin has garnered tons of speculation over the last few years (since its conception) that keeps driving its prices up and down. Bitcoin immediately witnesses an increase in its prices when its demand grows through investors’ interest. The significant speculation and curiosity regarding Bitcoin drive plenty of attention, capturing the media’s interest in the process.
Since Bitcoin’s demand is never guaranteed, it becomes even more challenging to value it. Nobody knows when speculation will rise, dropping Bitcoin in a lost state. This becomes a major problem for Bitcoin investors as the sudden drop in demand results in its value going down substantially. Bitcoin has managed to gain plenty of attention; however, its future is pretty uncertain.
Unlike gold and fiat currencies from all over the world, Bitcoin isn’t infinite in its supply. It’s said that there will only be 21 million Bitcoins ever to exist. When this supply runs out, there won’t be any left for investors to purchase. This digital asset’s code only determines a certain amount of it to be circulated worldwide.
Bitcoin has a maximum supply, out of which some of it gets released in its current supply now and then, thanks to the mining technology. However, no matter how many BTC are released, the maximum supply is believed to remain constant. A lot of work goes into creating sufficient BTC to circulate the whole world, which says a lot about its value.
Many people compare it to gold as it proves an excellent storage unit. Many crypto specialists refer to Bitcoin as digital gold, given people can use it to transfer massive sums of money a lot easier than other hedge funds. However, one significant difference between gold and Bitcoin is that the latter is limited in supply and riskier to invest in.
Bitcoin is priced the same across every exchange. This uniformity helps people trust the cryptocurrency more since they know the value will remain consistent throughout a specific period. Every Bitcoin investor should understand that Bitcoin is substantially different from other assets, with unique features and varying functions. Bitcoin's price fluctuation also works according to various aspects, eliminating economic factors.
The more you invest in crypto, the more you’ll acknowledge the significant difference between cryptocurrencies, such as Bitcoin, and other securities and assets. Bitcoin is the world’s most-traded digital currency and comes with a different profitability and risk ratio. It wouldn’t be wise to compare Bitcoin’s pricing with other assets as the entire demand and supply game is utterly different for Bitcoin.