A Google search at the time of this writing suggests that the price of a single bitcoin is more than USD$12,000. While much of the news surrounding bitcoin in the past year has been about the tremendous gains that have resulted in this latest value, there has been less discussion about the calculation of the value itself, and particularly about how Google (or any other source, for that matter) has determined the value of a bitcoin. Do a search on several different cryptocurrency exchanges around the world at the exact same time, and you’re likely to find somewhat different values for a single bitcoin. Why is it that the price of bitcoin varies depending upon where one looks?
No Standard Pricing
The primary explanation for discrepancies in bitcoin price across different exchanges is the fact that, as a decentralized digital currency, there is no standard or global bitcoin price at any given period of time. It isn’t pegged to the USD or to any other fiat currency, nor is it linked to a particular country or to an exchange. As with commodities of all types, supply and demand vary depending upon the time and the market, and the price of bitcoin fluctuates as a result.
Average Estimate Prices
Given that there is no global standard for the price of a single bitcoin, how can investors be sure that Google, a digital currency exchange, or another price tracker is accurate? The short answer is that these prices are not, in fact, guaranteed to be accurate at all. A reason for this is that most bitcoin price trackers calculate an average estimate or a recently-traded price of bitcoin based on the transaction history of a prominent bitcoin exchange. Google, for example, bases its figures off of the Coinbase API, which is why it links the value of bitcoin to a U.S. dollar.
Beyond the (hopefully modest) inaccuracies built into a price tracker or search engine when it comes to estimating the cost of a single bitcoin, investors should also keep in mind that the actual price of buying that coin in an exchange is likely to be higher. The reason for this is that most exchanges require some type of transaction fee. This is typically very modest in comparison to the price of a bitcoin, particularly as bitcoin’s value has skyrocketed in recent months, but it does further introduce inaccuracies into the price that you may see listed.
Finally, bitcoin exchanges link up those who have bitcoin and wish to sell with those looking to buy. Different exchanges may have different levels of supply and demand, and the price may be somewhat different. Of course, if the price on one exchange is markedly lower than on another, that alone is likely to shift the supply and demand levels further.