Since the beginning of 2021, the price of bitcoin (BTC) has reached new heights weekly and daily. On February 21, BTC reached a new full-time high of $ 58,300. An interesting development, however, is that even with many global cryptocurrency exchanges, the price of BTC is still very variable across geographical regions.
An interesting question arises: how can bitcoins be simultaneously traded at $ 53,047 in Malaysia, $ 49,727 in Singapore, $ 51,133 in India and over $ 86,000 in Nigeria? Is it just a temporary imbalance between buyers and sellers, taxes or regulations? Or play something else?
As shown in the chart below, there is no fixed price for BTC, as almost all countries have their own valuation of digital assets.
At any time, the prices of cryptocurrencies will vary depending on the country, even after adjusting the exchange rate. In fact, some extra pressure from buyers or sellers can create discrepancies, but this does not have to be consistent.
What is the reason for the large discrepancies in Bitcoin prices?
However, this phenomenon is not new or exclusive to cryptocurrencies. For example, Exxon Mobil shares are traded in the USA, Russia, Argentina, Germany, Mexico and Switzerland.
Although there may be different reasons for the disagreement, including bureaucracy and laws in a country, they are really the same. However, exchange rates usually vary after adjusting exchange rates.
Unlike stocks, a conversion of a cryptocurrency usually takes less than an hour and is independent of managers and depository receipts. Therefore, bureaucracy can not be the reason for the large differences in bitcoin prices, which are unlimited.
Assume, however, that someone has just bought BTC in the US or Europe and is willing to sell it in Argentina to take advantage of the 6.5% difference. Even if there were no trade fees, the result would be the local currency, the Argentine peso.
However, things get more complicated, as paper money has to be converted into dollars or euros. There may be local restrictions or taxes, or worse, a different exchange rate for foreigners. Furthermore, traditional foreign currency transfers are not performed on weekends and usually take one or two business days.
Not surprisingly, the countries with the highest Bitcoin rankings are consistently ranked low on global investment and financial degrees of freedom. Barriers and taxes created by tight state control add to the risk and cost of money transfers. All this contributes to an increase in insurance premiums in other countries.
Government action can lead to extremes
Tight capital controls, such as the recent closure of the Central Bank of Nigeria of all cryptocurrency-related bank accounts, may well fall behind today’s 70% premium over the global BTC markets. But Nigeria probably has the highest premium in the world because the country in particular is also a leader in bitcoin adoption, according to the latest data.
Finally, arbitrage brokers will find a solution to circumvent the sanctions, and the price gap should be closed. But there is currently no effective way to “make money” on arbitration.
For those wondering why bitcoin trades lower than most liquid markets like the US, there is no clear answer. This is likely to be a regulatory impediment to placing paper money on local exchanges, creating an imbalance in favor of sellers.
However, negative prizes are less common, and stack coins can be used to mitigate this effect. Meanwhile, when there is a huge premium in local fiat currency, it does not justify a price gap comparable to trading in stable dollar currencies.
Thus, such price differences represent risk, bureaucracy, taxes and disadvantages of converting fiat currencies between currencies and sending fiat money across national borders.