Home News Why does the price of Bitcoin differ around the world?

Why does the price of Bitcoin differ around the world?

oops-notice-announcing-end-bitcoin-support-error-says-microsoft
Ads

For an intangible asset that was essentially invented from thin air back in 2009, it’s incredible to think of the journey that Bitcoin has been on ever since. At the time of writing, you could sell a single BTC for around $47,800 – which, when you think about it, makes Bitcoin the equivalent of digital gold. However, there’s an important distinction to note here: Bitcoin is not worth the same all around the globe. It does have a fixed, single price, and therefore its value differs across the world.

But why?

Market sentiment & perception

Ads

They say there’s no news like good news.

In an ideal world, the whole planet would be bullish on innovations like Bitcoin – but the truth is that cultural and economic differences mean that BTC is perceived differently around the world.

One of the biggest difference-makers is regulation or the threat of it at least. In China, for example, they are pretty downbeat on cryptocurrency despite blockchain technology being widely adopted – that impacts the supply and demand curve in many parts of Asia.

In other parts of the world, it can be economic and political factors – those bad news stories – that impact the value of Bitcoin. The truth is that some will never see the value in digital currencies, and amid China’s crackdown, it has also been noted that Joe Biden and his key aides are also pretty downbeat on BTC.

Indeed, Gary Gensler – the chairman of the SEC – has suggested that cryptocurrency is nothing more than a Wild West of bad actors looking to make money from naïve investors with dreams of riches.

The USA had been pretty bullish about crypto under Donald Trump’s leadership, and it shows how quickly the worm can turn in this unregulated environment.

Some countries see BTC more affectionately, and in nations where there is political unrest and distrust, it takes more prominence. Amazingly, in El Salvador, Bitcoin has just become legal tender, which is thought to be a first anywhere on the planet.

Other factors also need to be considered. An interesting article in The Financial Times detailed the spooky correlation between Bitcoin price and the number of Covid cases in the United States – the conclusion was that as the surge in positive tests increases, so too does the price of BTC, and vice versa when the pandemic is more under control.

Coincidence? That seems unlikely, and the assumption is that the perceived value of decentralized finance is enhanced markedly in times of great sociological peril.

Calculating the value of Bitcoin

So when you go to a particular cryptocurrency exchange or even search in Google for ‘Bitcoin price,’ how do they come up with a value given that there is no fixed global price for BTC?

The truth is that if you check the price of Bitcoin online in the US before hot-footing it to Canada, Mexico, or any other country for that matter, you might just see a different value in the second nation.

But this isn’t the case with company stocks or a particular international currency, which have a single value for traders and investors to use as a guide.

Ultimately, we can label Bitcoin as a market-driven asset – that is, its value is determined mainly by the price people are willing to buy and sell it for.

Of course, traders can buy/sell tiny fractions of a BTC, but the price they can access will be determined by a sort of community-led perception of Bitcoin’s value – hence why such crazy swings have been experienced.

As we’ve already seen, the price an individual is willing to pay for BTC varies from country to country. Within a nation, there will be variances based upon budget, general bullishness about crypto, and even the platform used to acquire Bitcoin.

Some use the value listed at an exchange as a guide, a practice that does not come highly recommended. Remember that the transactional prices you see listed on a crypto exchange are down to ‘in house’ factors as much as a global view of Bitcoin – for example, available liquidity (and the exchange’s charges) will largely dictate the buy and sell prices and should not be used to value BTC.

Low liquidity exchanges tend to have larger spreads on their assets, so any buy/sell price you see here should be treated with a hefty pinch of salt.

The average estimate

The whole point of Bitcoin is that it’s a decentralized currency. Therefore, it cannot be used as a measure of value against USD, gold, or any other asset – the only comparable analysis comes when equating BTC to other coins.

Supply and demand vary from country to country and even from one exchange to another, so how do you know as a trader that you are accessing the best buy/sell price?

The truth, unfortunately, is that you cannot say for sure when and where the best BTC prices can be found. And that’s why most Bitcoin ‘trackers’ use an average estimate based on some different sources, including transaction data and the current buy/sell price listed at a variety of exchanges.

So the average estimate can be used as a good guide and can be considered reasonably accurate, but that’s not to say it is correct down to the percentile.

If you type ‘Bitcoin price’ into Google, you will also note that the result tends to be tailored to USD, which is only of relative value if you are located overseas. And so, if a currency increases or drops in value relative to the USD, then the average estimate will need to be altered accordingly in your own calculations.

The takeaway point is that these differences can be pretty small in the grand scheme of things, and the readily available average estimate is a good guide to what you can expect to buy or sell your BTC at – even when accounting for the global differences that determine how differently Bitcoin is perceived around the globe.

Ads