Bitcoin is a decentralized digital cryptocurrency that requires transactions to be verified via advanced cryptographic techniques, and there are no restrictions as to who can mine this currency. However, miners are limited due to the very advanced computational needs required for this purpose, per contra, exchanges have gained very wide popularity. Exchanges in general mine in bulk, and rely on the transaction and other operational fees that they charge Bitcoin traders, so they are able to survive and make some profits too. However, a natural consequence of this practice is that the rates of Bitcoin vary invariably over multiple exchanges. But why are some exchanges cheaper for Bitcoin than others in reality?
Why Are Some Exchanges Cheaper For Bitcoin than Others
So is it the lone factor of exchanges, or are there other factors too as to why some exchanges are cheaper for Bitcoin than others? Let us try to figure this out.
1. No Standard Rate: Bitcoin is decentralized, and as such there is no government body or association to regulate the price. Exchanges are also growing in number day by day, so some exchanges use cheaper prices for Bitcoin as a marketing tactic to establish their name and position.
2. No Uniform Subscribers: The prices of Bitcoin at a given time, depends upon the number of buyers and sellers on an exchange, as that regulates the demand and supply. So this is another reason that is accountable for why some exchanges are cheaper for Bitcoin than others, as they have more supply than demand.
3. Response to a Market News: We all know that the prices of Bitcoin vary as per market news very rapidly. But how much it must vary, and must it show a positive or a negative trend, depends upon how one interprets the news. Different exchanges have different teams of financial experts and economists, who, even though they get the same news, create different pricing models for Bitcoin in response. This leads to nothing but some exchanges being cheaper for Bitcoin than others.
4. Geographic Limitations: Although Bitcoin trading happens worldwide, where an exchange is located, under what law it falls, is also a determining factor in the price for Bitcoin at that exchange. So this also changes as we move across different countries.
Of course, the shift in pricing cannot be sustained for very long periods of time, so it has to finally come back to equilibrium as traders would compare one exchange over another before placing a buy or sell order. However, what is worth to them is this window of price variation. Bitcoin arbitrage is based on this principle of price differentials over two exchanges, and there is a completely well developed market for it. So what we can conclude is we must always keep our eyes open to look for exchanges that are cheaper for Bitcoin than the others, so that we can immediately tap the opportunity before both the exchanges reach sync where the prices start matching each other.