Price differences on Bitcoin exchanges

Two analyzers of the New York Federal Reserve Bank (FED) have published a report examining how to lead the frictions between Bitcoin trading venues to price differentials. They come to the conclusion that the exchange fees discourage potential arbitrage trading. The price differences between the individual exchanges would also explain why many see in Bitcoin no stable value.

Asani Sarkar from the FED said that this exchange rate contingent frictional losses reduce the incentive for market participants to use Bitcoin as a payment alternative. According to his argument, each Bitcoin should be the same highly rated. According to the market logic would arbitrage traders make between the individual exchanges that price differences are undermined by the arbitrage trading. In arbitrage trading it is basically about marginal price differences of a contract, for example. A currency pair between two brokers exploit.

The basis of the analysis were used data from three major Bitcoin Exchanges: BTC-e, and Bitfinex Bitstamp. According to the interpretation of the data are Bitcoins, which are purchased from BTC-e, generally traded at a lower price than in those that are traded on or Bitfinex Bitstamp. The average difference is 2% and may in peaks ranging up to 20%.

That can come into existence these differences is that arbitrage traders are the high costs of switching from traditional currencies Bitcoin and quenched conversely, argues Asani Sarkar.

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