Crypto Exchanges: Are They Really All the Same?
More and more are people deciding to buy crypto for a variety of reasons. Some like the political aspects, such as freedom from state control, while others use virtual currency to make payments online.
In any case, before you start your journey into crypto land, you’ll have to purchase some coins. Currently, there are many ways to do so, and crypto exchanges are the most convenient and easiest way.
Digital currency exchanges are the natural habitat of most investors and traders. According to CoinMarketCap, the number of exchanges has already exceeded 15,000, and it continues to grow every day. Under these circumstances, people wonder whether they are all the same. Let’s find out.
Price Varies Wildly among Exchanges
The difference in the exchange rate for one coin (for example, BTC) on different sites is explained by the fact that each market has its own sellers and buyers who are seeking different aims. Some participants want to buy BTC to make an urgent payment, so they are ready to purchase it right now at any price. Others are interested in long-term investments, so they expect a favorable exchange rate. Therefore, there are a number of cases where one exchange offers BTC for $3,600, while another asks for $3,800.
Let’s suppose two online platforms allow you to trade BTC for USD. On the first one, BTC is worth $15,900; on the second one, it’s $16,400. You register on both exchanges, buy the popular coin for a lower price, transfer it to the second exchange, and sell it for the higher price. What could be easier? But there is a “but”: commission, which does not enter the picture at all.
Sorry to destroy your worldview, but cryptocurrency arbitrage is not an easy process. On the contrary, it is a long and difficult path. With a commission of 4% on the USD, the first exchange will get you $15,264 worth of BTC instead of $15,900. Taking into account a 0.2% commission on the purchase, you can buy 0.95808 BTC. On the second platform, you will get 0.95708 BTC, and at the rate of $16,400 per BTC, you can sell the transferred funds for $15,665 — that is, you will not be able to earn a profit. The considerable difference in the exchange rates is to blame.
Reading the BTC price predictions, you’ll come across something like, “The price has surpassed $10,000 and reached $10,210 per coin.” However, comparing different platforms, we can see that DigiFinex offers a price of $10,247 per BTC, while on BitForex, it’s $10,229. Why do crypto exchanges have different prices? What does the price depend on?
BTC does not have a standard price. The brilliance of Satoshi Nakamoto’s idea is that BTC, unlike traditional currencies, does not have central banks that determine the daily exchange rate. The price of BTC is not sensitive to changes in the value of the US dollar. It doesn’t depend on the reserve bank’s interest rate decisions or other fundamental factors. Simply put, there is no single central authority that determines the price of BTC.
The BTC market price, like the price of any asset, is regulated by callous laws of supply and demand. Its fluctuations are caused by market participants’ needs and emotions, a market sentiment that forms the global trend.
So, where does the price of BTC, which is indicated in forecasts and analytical articles, come from? In most cases, it is the average price of all or some exchanges.
Are you ready to buy or sell digital assets? Keep in mind that the price will differ due to the exchange commission, payment system, and other fees. The country where the platform is based also plays an equally important role in price formation.
Different Exchanges Have Different Volumes
According to CoinGecko, one of the largest and earliest crypto data aggregators, the 24-hour trading volume of Coinbase Pro was $152,567,559 at the time of writing. On Bitstamp, it was $67,935,546; on Gemini, $16,143,717.
If a trader buys BTC for $9,985 and sells it for $9,981.50, then the $3.50 difference is the spread. When making a trade, the person receives an instant loss, but it can be compensated. The spread exists because the buyer and seller are not ready to give in to each other. The smaller the spread, the higher the asset’s liquidity. That’s why it is profitable to have a smaller spread and higher trading volumes. Do not purchase assets when the spread is expanding.
Newcomers wonder what affects the price run-up. The size of the spread depends on several factors:
- The number of trades for a particular cryptocurrency pair (supply and demand). In other words, the better the trading goes, the more offers from buyers and sellers, and the lower the spread
- The overall situation in the market. Different news and events (updates, support from large investors, hacks, expert opinions) that directly relate to a particular asset or partner programs in which the rewards for referrals are allocated from commissions and spreads have a slightly lower impact
The price difference is also controlled by the platforms themselves, most of which automatically prevent the appearance of a large spread.
- The range of available coins. There are exchanges where you can deal with top cryptocurrencies only, while others that trade all coins.
- Commission. There are zero-fee platforms and those that charge commission.
- User data. Some exchanges require verification, while others ask users to fill out a standard registration form.
- Account protection. Security details vary from website to website. Some platforms need only the password, and others use two-factor authentication.
- Deposit and withdrawals. Each exchange provides its users with various ways to deposit and withdraw funds.
The grand takeaway here? All exchanges are more or less equal. However, it is very difficult to attract new users nowadays, so they all differ in functionality and capabilities. Be selective, and don’t forget to make sure there are positive reviews to avoid possible risks. Good luck!