Ever compared the price of a Bitcoin on two exchanges and noticed that the figures do not match? That is due to the lack of a central price of cryptocurrency.
Every exchange has its own buyers and sellers. The orders create the order book, where the price at which the buyers are willing to purchase or sell is visible. Once the buyer and seller agree on a price, a transaction is executed.
Bitcoin will be traded at $60,000 in one market and $60,100 on another. Just illustrations of numbers, which indicate the disparity of prices due to separate markets.
The reason for this discrepancy will always be due to the availability of buyers and sellers on the market. If there are many more buyers than sellers, the demand will go high.
On the other hand, liquidity is also a factor. Liquidity means that the exchange is able to handle large transactions without much price fluctuation. The smaller exchanges will have some movement of price even with relatively small transactions.
Another one is that cryptocurrencies are traded in different pairs. Bitcoin can be quoted against US dollars on one exchange and USDT or any other currency on another exchange. Exchange rates and slight discrepancies in the price of the stablecoin may influence the displayed price.
Moreover, the prices change quite quickly and two applications may display different numbers just because they have obtained their data in different moments of time. Trading commissions, withdrawal commissions, and restrictions on transferring of assets may contribute to the price discrepancy.
Arbitrageurs play the role of closing this gap by trading the asset in a cheaper place and selling it in an expensive one. Arbitrage means buying an asset in a cheaper market and selling it in an expensive market. Such trading may stimulate the demand in the cheaper market and sales in the expensive market.
However, arbitrage is risky since commissions, time gaps, the changing price and other limitations may neutralize the apparent discrepancy.
The key idea is that each exchange represents the activity of its own market. The displayed price is just the result of this activity and not necessarily the price available everywhere.
