As bitcoin gets widely adopted and its price increases, there are many factors that decide how bitcoin is valued. Bitcoin price is as volatile as a gallon of gasoline near a fire but there is a lot of things to consider to know why bitcoin price varies from country to country.
Is there a standard price?
There is no standard for the price of a single bitcoin that’s why people will sometimes come up with the question of “Why the price differs in so many countries?”. But the real question these people should really be asking is “Why the price of bitcoin is sometimes different on various exchanges?”. The reason is there are a different number of people trading on different bitcoin platforms or marketplaces.
How the price of Bitcoin is determined: Its price varies, depending on the exchange you’re buying it on.
Some are more demanding than others
In trading bitcoin, the volume can be larger in more established exchanges, but much lower on smaller exchanges. It all comes down to supply and demand on these platforms. And, what people are willing to sell it for and what people are willing to buy it for.
Paxful, a peer-to-peer marketplace, is a bitcoin exchange platform where users can buy and sell bitcoin. We do not directly buy or sell bitcoin, we simply connect people from all the world to trade with each other.
In an exchange like us, there are users who have bitcoin (supply) and users who want to buy bitcoins (demand) that come together to trade. This arrangement affects the price of our platform in two scenarios:
One, if the supply is more than the demand- the price of bitcoin drops. This means the number of users who wants to sell (supply) is greater than the number of users buying (demand) resulting in a decrease in value.
Two, if the demand is more than the supply- the price of bitcoin will increase in value. This means the number of users who wants to buy (demand) is greater than the number of users who want to sell bitcoins (supply) resulting to the price in that particular area increasing in value.
Some like to move it, move it!
Many users move money across different exchanges. This will require a lot of knowledge in the industry to avoid inefficiency and collateral damage.
Let’s take a look at a scenario
Assuming you have your bitcoin trading at different prices on different exchanges. 1 BTC is trading at 106,000 ZAR at Platform A and 116,000 ZAR at Platform B, isn’t there more money to be made in this setup? Perhaps buy on Exchange B and sell on Exchange A.
This process is called Arbitrage. What users do is that as bitcoin’s price increases in one exchange than another, then they will buy and sell this bitcoin to profit from the difference.
It may seem easy…
Those considering exchanging from platform to platform must know that there are other factors to look at and what makes this process risky. Note that sending digital currency is not entirely free. There are transaction charges when sending from wallet to wallet, there are minimum and maximum amounts that can be sent, delays and there’s the risk of price volatility.
Arbitrage trading is risky, costly and time-consuming. Some still do it, but others may consider this not worth the while.
Ultimately
There is no established way to price bitcoin. Its decentralized nature makes it difficult to define its “supposed” cost.
It is not pegged to the USD or ZAR or any other fiat currency. Bitcoin has no standard pricing and it heavily relies on the supply and demand depending on the platform at a particular time and market- this results for its price to fluctuate.
So before you begin trading, consider these factors first. It’s a trial and error process and you’ll have to find out which techniques work best for you. There’s definitely a learning curve, but one that is surely worth it in the end.
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