Bitcoin (BTC) price has been tracking new highs weekly and daily since early 2021. On February 21, BTC hit a new all-time high of $ 58,300. An interesting phenomenon, however, is that, despite many global cryptocurrency exchanges, the price of BTC can still vary widely depending on geographic location.
This begs an interesting question: how can Bitcoin simultaneously trade at $ 53,047 in Malaysia, $ 49,727 in Singapore, $ 51,133 in India, and over $ 86,000 in Nigeria? Is the reason simply a temporary imbalance between buyers and sellers, taxes or regulations? Or is something else in play?
As shown in the graphic below, there really is no set price for BTC as almost every country has its own digital asset rating.
At any point in time, the cryptocurrency prices differ between countries, even after adjusting the exchange rate. Additional buying or selling pressure could lead to discrepancies, but this should not be continuous and steady.
What causes the huge BTC price differences?
However, this phenomenon is nothing new or exclusive to cryptocurrencies. For example, Exxon Mobil shares are traded in the US, Russia, Argentina, Germany, Mexico and Swizz markets.
While there can be a variety of reasons for friction, including red tape and country-specific laws, they are basically the same capital. Even so, their prices usually differ after adjusting the exchange rates.
However, unlike stocks, the transfer of cryptocurrencies typically takes less than an hour and does not depend on custodians and custodian administrators. Bureaucracy cannot therefore be the reason for the large price differences in Bitcoin, which are limitless.
On the other hand, let’s say you’ve just bought BTC in the US or Europe and are ready to sell it in Argentina to take advantage of the 6.5% difference. Even if there were no trading fees, the result would be the local currency, the Argentine peso.
However, things get more complicated as you have to convert that fiat money back into dollars or euros. There may be domestic restrictions, taxes, or worse, a different exchange rate for foreigners. In addition, traditional currency transfers don’t take place on weekends and typically take a business day or two.
Unsurprisingly, the countries with the highest BTC ratings consistently perform poorly on global rankings for investment and financial freedom. Barriers and taxes imposed by tight government controls add additional risks and costs to converting and transferring fiat. All of this contributes to the premium over other countries.
Government action can lead to extreme situations
Extreme capital control situations like the recent closure of all cryptocurrency-related bank accounts by the Central Bank of Nigeria could lag behind the current 70% premium to global BTC markets. But Nigeria probably has the highest premium in the world as the country in particular is also a leader in Bitcoin adoption based on the latest data.
#Bitcoin price in Nigeria is now $ 80,000 – a 60% premium.
That is what happens when you try to ban something that people want.
– Bitcoin Archive (@BTC_Archive) February 18, 2021
Eventually, arbitrage traders will find a solution to bypass sanctions and the price gap should close. However, there is currently no effective way to “profit” from the arbitrage.
For those wondering what would cause Bitcoin to trade under most liquid markets like the US, there is no definitive answer. It is most likely a regulatory hurdle to depositing fiat money on local exchanges, creating an imbalance that favors the sell side.
The negative premium is less common, however, and stablecoins could be used to mitigate this effect. Having a high premium in the local fiat currency does not justify a similar price gap for the dollar denominated stable coin trade.
Such price differences between different countries therefore present the risks, bureaucratic hassle, taxes and inefficiencies involved in converting fiat between currencies and sending fiat money across borders.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.