There are a lot of useful and incomplete things on the Internet. So, this is a place where eternal advertisements like “check this link and you will become fabulously rich” coexist with useful information on how to invest in cryptocurrency, where to buy it, and at what price. But there is a lot of information and it is all different, how to figure it out?
The Difference in Quotes on Different Exchanges Allows Traders to Make Money on Arbitrage
The experts explained how the price of a cryptocurrency is formed and why it differs depending on the site.
When working with different cryptocurrency exchanges, you may notice that the price of bitcoins and other digital currencies varies significantly. Thanks to this, traders can earn on the so-called arbitrage. The idea behind this strategy is to buy digital coins cheaper on one exchange and sell them for more on another.
You can see the total value of the main cryptocurrency on aggregators like CoinMarketCap and Coingecko. These services show the average price of assets, and can also display the value of digital coins on various crypto exchanges.
How Is the Price Formed?
On each specific exchange, the price of an asset is determined by the last completed transaction, explained professionals. At the time of the transaction, the seller and the buyer meet on the cryptocurrency exchange and find a price that suits both parties. The buyer wants to buy the asset at a lower price, and the seller wants to sell it at a higher price. For the deal to close, both parties must come to a compromise.
Dynamics and Difference From Fiat
The price of cryptocurrencies is more dynamic than that of fiat since there is no regulator that would support the cost of crypto assets by injecting liquidity. According to experts, in the fiat currency market, this is done by central banks and financial regulators – they often create conditions for artificially reducing volatility in the foreign exchange market.
What Else Is Shaping the Course
Large exchanges have an impact on cryptocurrency quotes since most traders monitor prices on large exchanges and expect smaller ones to follow due to arbitrage. The experts emphasize that this principle works with crypto-exchanges that are located in different parts of the world.
For example, if in South Korea, Bitcoin becomes cheaper than the South Korean won, it is likely that it will be followed by European and American platforms with pairs denominated in euros and dollars.
Crypto exchanges are not completely global, and the geographic location of the site affects the value of assets. According to him, this is due to the fact that supply and demand in one region may differ from supply and demand in another region. Therefore, prices on different exchanges usually differ slightly.
Which Exchanges to Focus On
The price of cryptocurrencies is usually lower on exchanges that have low AML (Anti-money laundering) requirements or a low level of reliability. On fully legal exchanges, the price of cryptocurrency is on average higher, professionals say.
They also advise taking into account the quotes of several large exchanges at once to determine a fair price. In their opinion, it is worth focusing on sites with a good reputation that operate legally. They also advised paying attention to the liquidity and turnover of the exchange, since low liquidity indicates the complexity of the implementation of transactions at prices close to market prices. High liquidity speaks for the fairness of the current exchange rate.