It’s common to observe discrepancies in cryptocurrency prices when comparing them across exchanges during the same timeframe on any day. These variations can range from 1-2% on normal trading days, but occasionally, they can be as high as 4-5%.

The question arises, how can a single crypto asset have two distinct prices?

Reasons for price difference across different cryptocurrency exchanges:

(1) Market Liquidity: The term “liquidity” pertains to the level of ease in buying or selling an asset without causing a significant impact on its price. Cryptocurrency exchanges that have a larger trading volume and more participants typically possess better liquidity. The exchanges with higher liquidity often have a smaller difference between the buy and sell orders, resulting in less price variation between exchanges. Conversely, exchanges with lower liquidity may have a larger difference between the buy and sell orders, leading to discrepancies in prices.

(2) Order Book Depth: The exchange’s order book is a compilation of buy and sell orders placed by traders. The quantity of orders at different price levels, known as the depth of the order book, may differ across exchanges. A greater number of buy orders on an exchange can result in a higher price, while a larger number of sell orders on another exchange may lead to a lower price.

(3) Regional Factors: The global nature of cryptocurrency markets does not guarantee uniform demand and supply for all cryptocurrencies across different regions. The prices of specific cryptocurrencies on exchanges are subject to various factors, including local market preferences, regulatory environments, and investor sentiment, which can vary from region to region. Furthermore, certain exchanges may impose restrictions or have limited availability in specific jurisdictions, leading to price disparities.

(4) Exchange Fees: Fees are imposed by cryptocurrency exchanges for trading operations, with varying fee structures such as maker and taker fees, discounts based on trading volume, and withdrawal fees. These fees may influence the buying and selling prices provided on distinct exchanges, leading to differences in prices.

(5) Exchange Connectivity: The availability and pricing of trading pairs on a cryptocurrency exchange can be influenced by its connections to liquidity providers or trading networks, which may vary between exchanges. The specific partnerships and connectivity arrangements with liquidity sources can result in differences in prices across different platforms.

(6) Market Manipulation: Compared to traditional financial markets, the cryptocurrency market is still in its early stages and lacks sufficient regulation. As a result, it is vulnerable to market manipulation, such as coordinated trading activities or pump and dump schemes. These manipulative practices can cause temporary price discrepancies by artificially inflating or deflating prices on certain exchanges.

(7) Exchange Reputation and Trust: The prices on a platform can be impacted by the exchange’s reputation and trustworthiness. If an exchange has a strong reputation and a proven track record, it may attract more users and trading activity, resulting in narrower spreads and more stable prices. Conversely, exchanges that are less reputable or newer may face wider spreads and price discrepancies due to lower user confidence and trading volumes.

(8) Time Zone and Trading Hours: The cryptocurrency markets never take a break, operating 24 hours a day, seven days a week. However, the trading volumes on different exchanges can fluctuate depending on the time zone and trading hours. When a particular region is experiencing the peak trading hours, the exchanges in that time zone tend to have higher liquidity and trading activity, resulting in tighter spreads and price convergence. Nonetheless, during periods of low trading activity, price discrepancies may appear.

(9) Security and Reliability: An exchange’s pricing can be influenced by its security and reliability level. Robust security measures, including strong encryption, two-factor authentication, and cold storage for user funds, may attract more users and instill confidence, resulting in narrower price spreads. Conversely, exchanges with a record of security breaches or technical difficulties may experience wider spreads and price disparities.

Also read: Why crypto price are highly volatile

(10) Regulatory Factors: The regulations and legal frameworks for cryptocurrencies differ in various jurisdictions. In regions with more stringent regulations and compliance requirements, exchanges may incur higher operational expenses, which can influence their pricing and fee structure. Adherence to regulatory standards can also impact the accessibility of specific cryptocurrencies on particular exchanges, resulting in price fluctuations.

(11) Market Sentiment and News: Cryptocurrency prices can be influenced by various factors, including market sentiment and news. Whether the news is positive or negative, market trends, regulatory announcements, or significant partnerships can all impact investor sentiment and cause price fluctuations. These factors may affect exchanges differently, leading to price discrepancies as traders react to news and market sentiment.

The cryptocurrency market is a constantly evolving space, impacted by various factors. As a result, price discrepancies can arise between exchanges, driven by a combination of these factors. These discrepancies can fluctuate rapidly as market conditions change. Therefore, traders and investors must exercise caution, conduct thorough research, and consider multiple factors when evaluating prices across different exchanges. However, it’s important to note that arbitrage opportunities are usually brief due to market efficiency and the actions of arbitrage traders. Over time, these factors can lead to price convergence across exchanges.

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].