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The price of bitcoin can be significantly different on each cryptocurrency exchange. This leads to people wondering whether they’re missing out on anything, or if the market is being manipulated somehow by just one exchange. 

You’ll find quite a few reasons why this might be happening, but none of them are so simple that you could say it’s just that one reason alone. 

We’ll take you through some of the reasons, but also explain why no one actually knows why the price varies so much from exchange to exchange, and what we can do about it in the long run (if anything).

There Are Two Main Types of Cryptocurrency Exchanges

We use two main types of exchanges to buy and sell cryptocurrencies like Bitcoin. There are centralized and decentralized exchanges. 

Centralized exchanges allow you to deposit funds in your account and trade them for other coins like Bitcoin or Ethereum. 

Decentralized exchanges are a bit more complex. They involve trading pairs with cryptocurrencies like Bitcoin and Ethereum to determine their prices because there isn’t a central authority dictating what one coin is worth in relation to another.

What Is The Main Difference Between Them?

There are two main differences between cryptocurrency exchanges: fee structures and liquidity. In other words, some exchanges have lower fees or higher liquidity than others.

Fees There are two main types of fees that you'll encounter when trading on a crypto exchange: transaction fees and withdrawal fees. Transaction fees are paid whenever you execute a trade, and these range from 0% to 0.2%. 

This means that if you make a trade with a 20% transaction fee rate (which would be very high), then 20% of your profit will go to cover those costs. Withdrawal fees are charged when withdrawing your coins from the exchange back into your own wallet.

How This Affects Crypto Traders

The first explanation for the difference in Bitcoin prices across exchanges is that it's due to liquidity. Liquidity describes how easy it is to buy and sell an asset at a given point in time. 

For example, if there are large differences in prices between two exchanges then traders will buy Bitcoin on one exchange and sell it on another until those prices get closer together. 

The second explanation for difference in Bitcoin prices across exchanges has to do with regulations. Different countries have adopted different regulatory stances towards crypto trading which makes some regions look more appealing to crypto traders than others. 

The third explanation for difference in Bitcoin prices across exchanges has to do with volatility and risk aversion. As traders move from one exchange to another their risk tolerance may change which alters their trading behavior.

The Bottom Line

The exchange rate of Bitcoin is determined by supply and demand. The supply of Bitcoin increases each time a Bitcoin miner creates a new block. The current fixed reward for creating a block was set in 2012 at 50 BTC. 

At today's price of about $10,000 per Bitcoin, that means that mining can be quite profitable. 

As the rate of creation goes up, the rate of supply increases as well. The more people who are trying to mine Bitcoin, the harder it gets to actually mine Bitcoins. 

That difficulty is measured in how many billions of tries (or hashes) it takes on average to create a new block. When Bitcoin was first mined in 2009, a successful hash took an average of 2.2 billion attempts. 

In 2011, this had been lowered to 600 million attempts. To compensate for this drop, the difficulty level has increased. 

It now takes about 14 trillion attempts on average to find a new block (4 times higher than when Bitcoin first started).