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The Reason Behind the Shocking Price Difference Across Crypto Exchanges

5th August 2019 by Tapper Filed under Uncategorised

If you have ever traded on more than one cryptocurrency exchange, you would notice that prices are not usually the same. It is easy to think that the difference in prices is due to the quick movement of cryptocurrencies. Looking at multiple exchanges simultaneously clears every doubt, because prices usually differ. This leads us to the question; What is the reason behind the shocking price difference across crypto exchanges?

At the time of writing, the Bitcoin prices across some major exchanges are listed below:

  • Bittrex $9,503.22
  • HiBtc $9,547.20
  • Poloniex $9,538.00
  • Yobit $9,847.00
  • Binance $9,546.20

For anyone who is new to the cryptocurrency market, this would definitely appear strange. Since Bitcoin is a universal currency and is maintained on one particular network, then what is the reason behind the shocking price difference across crypto exchanges?

This difference in price is not particular to Bitcoin. As a matter of interest, it is even more pronounced when dealing with altcoins. Take Dash as an example; the variation in the price of Dash across the same exchanges as above are shown below:

  • Bittrex $106.40
  • HiBtc $107.16
  • Poloniex $107.73
  • Yobit $110.13
  • Binance $106.79

Sometimes this could be confusing for cryptocurrency users when it comes to making transactions. Consider a scenario where two parties have agreed on a deal, and one of them decides to settle the payment in the cryptocurrency of a particular exchange. If the other party obtains price information from a different crypto exchange, then there will likely be a dispute in the final value of the deal.

In order to explain the reason behind the shocking price difference across crypto exchanges, a few factors must be considered.

Liquidity

Liquidity is a key issue for exchanges. In order to breakeven and maintain both administrative and infrastructural responsibilities, an exchange needs to be reasonably active. Traders are attracted to exchanges where they can receive prompt and efficient services. 

It is usually frustrating when you have orders delayed because of lack of liquidity. Therefore, the level of supply and demand of a given token on an exchange plays a key role to what becomes the bid and ask price. The difference between the bid and ask pride is the spread. Hence, the higher the liquidity, the lower the spread and by implication, the lower the price.

Decentralization

Bitcoin has one single network, as do individual altcoins. However, there is no centralized or regulated pricing system. The price of crypto is purely based on trading and the economic factors of demand and supply.

So, for exchanges, these factors may vary from time to time, although the variation naturally falls within some given ranges. That is why you often hear traders talk about the average price of a given cryptocurrency.

Cost of Transaction

There are many exchanges today in the cryptocurrency industry, and participants are involved in inter-exchange transactions. These trades come with their fees, and sometimes these fees can be huge, depending on the amount and level of activity involved.

Situations like this impose financial burden on the exchanges, which must be balanced out one way or the other. The most ideal way available for now is to diffuse these costs into the pricing of the product, in this case, Bitcoin or altcoins.

A Universal Solution for Traders

Price variation across cryptocurrency exchanges is a burden for traders who seek to make the most of their Bitcoins and altcoins. It is common to find traders jumping from one exchange to the other in search of best prices. Sometimes they end up “robbing Peter to pay Paul” in the sense that while going through multiple exchanges, what is saved in price is lost in fees.

Platforms like tap have come to save the day by bringing multiple exchanges to one place and making it easier and more cost effective to trade Bitcoin and altcoins.

When using the tap app for trading, an in-built algorithm scans through major exchanges within seconds to find the best price for the particular pair. This is a source of enormous value and satisfaction for traders today. Profit is maximized, trades are efficient and the reason behind the shocking price difference across crypto exchanges is neutralized.