Bitcoin price difference between Exchanges – XBTPro
Bitcoin was created by an anonymous person or group of people, Satoshi Nakamoto, in the year 2008, just after the financial crisis in the US. Satoshi Nakamoto believed that the main reason behind this crash was the middleman, i.e. the banks. He went forward and published a whitepaper describing how Bitcoin can be used in place of fiat currency that will be decentralized, free from a middleman, and immutable to hacks. Nakamoto wanted to build a currency that would make transactions cheap and transparent.
Bitcoin has rapidly gained popularity in the mainstream media. It is now a widely traded asset in the exchanges around the world. It is used by small business like REEDS Jewellers to big MNCs like Microsoft and PayPal. It has its very own price index, API or application programming interface and exchange rate.
Key Metrics
The data provided below is as of December 20, 2019.
Ticker : BTC
Current Trading Price : $7,700
Market Capitalization : $ 130,389,558,146
Total Supply : 21,000,000 BTC
Circulating Supply : 18,112,075 BTC
Difficulty : 6, 353, 030, 562, 983
All-time high : $19,783.06
24 hour volume : $ 22,140,967,971
Hashrate : 51, 477, 171 TH/s
Mempool size : 10, 395, 621 Bytes
How Bitcoin Works?
When Satoshi Nakamoto put forward the concept of Bitcoin, he also gave rise to a revolutionary technology, called blockchain. Blockchain is a vast public ledger of millions, even billions of blocks where each node keeps its own copy of the ledger. A peer-to-peer transaction is broadcast to all the nodes for approval, once approved this transaction is updated in all the nodes. In this way, all the users are aware of what is going on in the network which prevents double-spending and stealing.
Any editing in the network is carried out by group consensus. This means a new block is added to the network only when the whole group approves its addition. This keeps the system safe from hacks. Even if a hacker hacks into one system and makes changes in the ledger, no one will accept that ledger because every other node has an original copy of the network. It’s impossible for a hacker to hack even 50% of the nodes.
Where can I buy BTC?
To buy or sell BTC you can use any one of the exchanges listed below:
· XBTPro
· Gemini
· GDAX
· Coinbase
· Kraken
· Bitfinex
· Poloniex
Bitcoin Price Difference between Exchanges
I did a Google search at the time of writing this article. I found that the price of a BTC is around $9,320.
Here is the data from various exchanges:
· Kraken: $9,330.00
· Bitstamp: $9,324.99
· Gemini: $9,327.36
· GDAX: $9,323.56
· Bitfinex: $9,351.60
For the last few years, the entire buzz has been about how profitable BTC investment is. No one is talking about how its value is calculated. What determines the price of BTC? Why the price of BTC varies from exchange to exchange? Is there any standard formula to calculate the price of BTC? No one is addressing these questions. But we will. We will find out in this article, why the value of BTC depends on where one is looking and how we can profit from it.
BTC Lacks Standard Pricing
The primary reason behind these discrepancies in the price of BTC is that there is no global authority that regulates the price of Bitcoin. It is a decentralized currency. It does not depend on USD or any other fiat currency. So at any given point of time, the price fluctuates based on the demand and supply mechanism. This decentralization is the reason behind the entire buzz surrounding BTC and also the reason behind its discrepancies.
Average Price Estimates
So I understand that there is no standard price for BTC, then how do I know that Google or any other exchange for this purpose is showing the accurate price? The simple answer is they don’t. Most exchanges show the recently purchased price of BTC. This is the standard price in that platform.
Let us understand this with an example. Suppose person A bought BTC for $7,000 in XYZ exchange. So in XYZ exchange, this becomes the standard price for BTC. Now a new person comes and buys BTC at $10,000, then that would be the standard price. This is a huge infrastructural flaw in this game.
Also, these price estimates do not include the transaction fees that the exchange will charge you. These fees are generally very small as compared to the price of Bitcoin but it is sure to increase discrepancies further.
What is arbitrage?
When a certain commodity is priced differently in two platforms, you can make a profit by buying it at a lower price in one platform and selling it at a higher price in another platform. This is the whole concept of arbitrage.
This game of arbitrage dates back to 650 BCE, when silver was quite cheap in Persia. People would earn profits by buying silver in Persia and selling it in Greece.
This old concept can make you enormous profit by using the Bitcoin price difference between exchanges.
Here is a simple demonstration of how you can use the Bitcoin arbitrage opportunity.
1. Transfer fiat currency from your bank account to your Kraken account.
2. Buy BTC using that fiat currency.
3. Transfer your BTC from Kraken to CEX (or any other platform where BTC is costlier as compared to Kraken).
4. Sell that BTC in exchange for fiat currency.
5. Transfer the fiat currency to your bank account.
6. Eureka! You made a profit.
It’s as simple as that.
Different kinds of arbitrage opportunity in the crypto
On a broad level, two types of arbitrage opportunity exist in the case of crypto.
1. Crypto/ crypto arbitrage
2. Crypto/ fiat arbitrage
Let us understand each type of arbitrage in details.
Crypto/ crypto arbitrage
Crypto/ crypto arbitrage exists when there is a price difference between buying and selling of one crypto for another crypto in two exchanges.
Suppose in Exchange A you can buy 1 BTC for 1000 LTC and in Exchange B you can sell the same 1 BTC for 1500 LTC. This is a classic example of crypto/ crypto arbitrage. Buy BTC using LTC from Exchange A and sell it in Exchange B making a profit of 500 LTC.
Crypto/ fiat arbitrage
Crypto/ fiat arbitrage opportunity arises when the price of BTC against some fiat currency like USD is different in two exchanges. You can buy BTC at a lower price from one exchange and sell the same in another exchange, making a profit in the middle.
Strategies to Profit from Bitcoin arbitrage
Be prepared
You must know that the crypto market is very volatile. It can show a sharp trend reversal within hours, sometimes even minutes. So you would like to work as quickly as possible. It’s better to keep a combination of both fiat and BTC in two exchanges of your choice.
For example, you can keep 1 BTC and $8k on Kraken and another 1 BTC and $8k in CEX. As soon as you notice a Bitcoin arbitrage opportunity between Kraken and CEX, you can exploit it immediately by buying BTC at a lower price in one exchange and selling the same amount of it at a higher price in another.
To be successful in this, you will have to keep a combination of both fiat and BTC in all the major exchanges. Remember, you will have to pay the deposit, withdrawal and network fees. These are very low as compared to the price of BTC but you can affect your profit.
Look at the right place
Even if you are keeping an eye at the top of the order book, you will definitely find some arbitrage opportunity. But if you looked inside the order book, you will get a better picture of what’s coming.
Suppose you are looking at the top of the order book and found out that the current trading price of BTC is $7,700. But there is very less amount of BTC (< 0.2 BTC) up until $7,650. So, here if you could wait, you will definitely find an arbitrage opportunity between exchanges. As soon as the price hits $7,650 in one exchange sell 1 BTC on another exchange. This is a clever way of using Bitcoin arbitrage.
Understanding the hidden costs
Things are not as easy as they seem, especially when you are dealing with cryptos. You must keep track of deposit, withdrawal and network fees. When you combine these costs, making a profit from Bitcoin arbitrage becomes a lot more difficult, though it is not impossible.
Moreover, the crypto market is very volatile. If you are not prepared the arbitrage opportunity may be lost before you can make any profit.
In simple terms, Bitcoin arbitrage is a risky game. Know the rules, prepare the ground and then execute it with full discipline. In the long run, you will definitely make a profit.
Published at Mon, 03 Feb 2020 11:25:17 +0000
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