Why do bargains exist?
Since creating our Remittance Bargains page, we have received many questions on how it is possible that these bargains even exist. I will try to explain it in this post.
The key factor: The market
The bargains are possible because of one single factor: the price difference in certain bitcoins markets.
This means that the bitcoin price defers from country to country and from exchange to exchange because of the bids and asks demand on them. We are currently using bitcoin, but the same aplies to any cryptocurrency out there.
In financial terms, this is called “arbitrage” and is used mostly with shares and options.
4 drivers for Bitcoin price differences
There are mainly four drivers that let the bitcoin behaves with such a differences on markets:
1) Reaction time: this is when a price changes on one of the main global exchanges (eg: Bitstamp, Coinbase, etc) and the smallest ones, with less transaction volume, takes some time to react to that change. This reaction time could normally be some hours or even a day.
2) Feasibility to take the money out of the country by using a bank transfer: this is how easy is to take the money by using traditional method. For example, in South Africa is quiet difficult to do that, so the bitcoin’s price is one of the most expensive in the world. The same hapens in Japan.
3) Offers/Demand: as the price is open to free market, in some cases the price changes because of the higher demand. For example in Argentina its usually sold at Bitstamp minus 2 or 3 percent.
4) FX rates: in some cases, the fx rate used for the usd vs the local fiat currency, makes all the difference. This only happens in countries with multiple parallel exchange rates, e.g. Argentina.
This is the first of a series of articles where we want to explore problems and opportunities related to remittances and Bitcoin.
By Joaquin Moreno, co-founder at Mondome.