Why Bitcoin Prices Differ Across Exchanges & How to Profit via Arbitrage

At a glance: Global Bitcoin price differences exist across exchanges because there is no standard pricing protocol for digital assets. Different transaction fees that crypto exchanges charge investors, fluctuations in trading volumes, and different depths of liquidity affect the various exchange prices.

Have you ever been browsing crypto exchanges and noticed that different exchanges list their Bitcoin at different prices? It can definitely be a little odd to realize that the same token varies in price from 1–5% on certain exchanges. However, once you understand how crypto exchanges work, the reason for this difference becomes apparent. Explore this guide to learn more about crypto price differences between exchanges — and to see how you can use the arbitrage trading strategy to profit from these differences.

Key Takeaways: 

• Understand the pricing mechanics of crypto on different crypto exchanges. 

• Identify the price differences and know how to capitalize on these arbitrage opportunities.

• Get an in-depth evaluation of whether crypto arbitrage trading matches your expectations.

Why Does a Single Digital Asset Trade at Different Prices?

Let’s take Bitcoin as an example. Its prices vary entirely based on the market. A token is worth as much as users are currently willing to pay for it. As you might guess, there are varying prices at which investors and traders are willing to buy. But how do exchanges find a definitive price for their tokens? When you look at the price of BTC on an exchange, you're simply seeing an average estimate of what everyone currently buying BTC is willing to pay.

However, there are a lot of different ways for exchanges to formulate an average estimate pricing on different assets. Some exchanges use different data sets, and others may prioritize different details when making their calculations. Even small differences can mean that 1 BTC that costs $25,350 on Coinbase might be $25,340 on Bybit.

How to Spot Different Bitcoin Prices on Different Exchanges

If you usually stick to one exchange, you might not notice the discrepancy right away. At a glance, Bitcoin prices can look quite similar. Especially when prices are constantly fluctuating, it may seem normal to see a slightly different price when you open a different exchange. However, these small discrepancies can indicate that one exchange consistently charges more for Bitcoin. To actually spot different prices, you'll need to simultaneously look at multiple exchanges.

Fortunately, modern technology makes this easy. There are a lot of sites, like Cryptoradar that provide a side-by-side comparison of Bitcoin prices on different exchanges. By doing a little research, you can quickly find the exchanges with the best Bitcoin prices. It's definitely worthwhile to take the time to do so, especially when making large orders — because you can save from the price difference or profit from arbitrage trading.

Why Do So Many Exchanges List Different Prices?

Why are Bitcoin prices different on different exchanges? There are a variety of factors that go into calculating Bitcoin prices, so there are several reasons you’ll see different prices on different exchanges.

Lack of Standard Pricing

Ultimately, the main reason for crypto price differences between exchanges is the lack of standard pricing. Fiat currency is carefully regulated and backed by The Federal Reserve. Meanwhile, cryptocurrency is decentralized. Its value is based solely on what the market determines. 

In the case of Bitcoin, the same coin that was once worth pennies came to be valued at tens of thousands of dollars. Therefore, there is no set guideline that all exchanges can use when they make their prices. This lack of guidelines also means that, technically, no exchange has to follow the rest of their competitors. If their calculations lead them to believe a cryptocurrency is worth a different amount, they don't have to sell it at the same rate as other exchanges. Some may offer higher or lower prices, as it’s all based on market logic and sentiment.

Liquidity

Another big factor in price differences is the trading platforms' liquidity. If a crypto exchange is smaller, it usually doesn't have as many assets on hand to sell or convert to cash. This lack of liquidity affects pricing because every time a sale is made on an exchange, it can influence other traders to buy or sell their crypto. The more liquid an exchange is, the less likely it is to have sudden price fluctuations.

Market Forces (Supply and Demand)

The concept of supply and demand is one of the biggest factors in determining crypto prices. However, most crypto exchanges don't just look at the market as a whole. Instead, they also consider what's happening on their specific exchange. If one crypto exchange's users are demanding more Bitcoin than some others’, prices can be higher on that exchange. This effect is often more visible on large crypto exchanges. Since many users rush to popular exchanges during a period of high demand, prices on these exchanges might be a little higher than prices on smaller exchanges with less user interest.

Transaction Costs and Fees

Don't forget that crypto marketplaces are all individual businesses, with their own unique goals and strategies. In order for them to profit from facilitating users’ transactions, trading on exchanges incurs transaction fees for these services. Typically, crypto exchange fees can range from around 0.02% to 3.0%, which has an impact on the total cost that you pay for the cryptocurrency. 

Some exchanges also pass on transaction costs — such as gas fees — to their clients, so prices might fluctuate even more. During times of high demand, gas fees can increase, so exchanges that bundle this cost into their transactions will be significantly pricier than exchanges with a simpler fee structure.

Different Crypto Pairings

When you look at crypto exchange prices, remember that not all trading pairs include USD. Even though prices are often shown in fiat currency, crypto trades usually transpire using two different currencies. For example, one user might buy Bitcoin with ETH, while another buys it with a stablecoin. These different trading sets are called pairings, and they end up impacting the overall value of a Bitcoin. 

For example, Ethereum values often follow Bitcoin values, so if Bitcoin prices spike, ETH prices tend to follow. This leads to more volatility when trading with certain pairings. Meanwhile, prices are more stabilized if you work with more stable pairings, like USDT or USDC. Market volatility leads to different prices on different exchanges. The types of pairings an exchange offers will significantly impact its overall price for Bitcoin.

Claim Rewards to Trade BTC/USDT on Bybit Spot

What Are Arbitrage Opportunities?

Since digital assets vary slightly in price, finding crypto markets with lower crypto prices is a great way to save money on your trades. However, that's not the only reason you need to pay attention to Bitcoin prices on different exchanges. Since different crypto exchanges have different prices for Bitcoin, it’s uncommon for investors to employ arbitrage strategies for profit.

Arbitrage is a trading strategy where traders simultaneously buy or sell Bitcoin in different markets to profit from the value difference. Not only can you make money as an arbitrageur, but this method also encourages crypto markets to resolve their differences and settle at more comparable prices. Here are a few crypto arbitrage opportunities you might want to try.

Cross-Exchange Arbitrage

This is the most popular type of arbitrage trading because it's the simplest. You start by finding a crypto exchange that has Bitcoin for sale at a particularly low price. After you purchase tokens on that exchange, you then take them and sell them on another exchange that has Bitcoin listed at a higher price. Once you sell the tokens, you're left with some extra funds you can pocket. For example, if you buy 10 bitcoins at $20,000 each on one exchange, and sell them on another exchange that lists Bitcoin at $20,050, you end up making a $50 profit (before fees) from your trade.

Keep in mind that this type of arbitrage comes with some risks. You need to buy and sell large sums of crypto for the strategy to result in noticeable profit. In addition, trades are time sensitive, so if you delay too long in selling your crypto, prices can change and reduce your profit. Finally, other traders are also participating in cross-exchange arbitrage so that the markets can converge and Bitcoin might end up being worth roughly the same amount on both exchanges.

Triangular Arbitrage

Triangular arbitrage is somewhat more complex. It involves performing several trades on the same crypto exchange or across multiple platforms. Instead of simply taking advantage of different prices for Bitcoin on different exchanges, triangular arbitrage also looks at pricing inconsistencies between crypto pairs. You start by buying a crypto that's undervalued on one platform. Next, you use this crypto to buy an overvalued crypto. Then, you sell the overvalued crypto to buy back the initially undervalued crypto.

Instead of just providing you with a net profit, triangular arbitrage lets you do things like convert a small amount of Bitcoin into a larger amount of Bitcoin. It can be performed alongside cross-exchange arbitrage to create unique trading opportunities. However, triangular arbitrage involves multiple trades, so there are even greater risks of poor timing and slippage cutting into your profit. You also need to make sure you’re carefully calculating all your fees before you start, because multiple transaction fees can reduce your chance of a profit.

Learn more: Top Crypto Arbitrage Strategies

The Bottom Line

The price of a Bitcoin or crypto generally depends on macroeconomic and microeconomic influences. Crypto exchanges may have different supply and demand levels, liquidity, and transaction fees that may affect the overall asset’s price. Of course, these differences open up arbitrage opportunities for an avid trader who knows how to capitalize on them.