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In a fragmented global market, price quotes are everywhere. This is why CoinDesk created the Bitcoin Price Index (BPI). The current debate over the absolute price of the leading cryptocurrency shows how hard a decentralized industry is to find a common pricing system that everyone can agree on.
Depending on who is asked, the price of bitcoin at any one time can be quoted in a range of hundreds of dollars. For this reason, some outlets claim that bitcoin has already eclipsed its all-time high three years ago, while others, including CoinDesk, say we are still a long way from the mark. Indeed, just like the foreign exchange market, the cryptocurrency market is not centralized like, for example, the New York Stock Exchange.
While individual crypto exchanges are referred to as “centralized,” they are because the exchanges take place within their platforms. In fact, they trade the same digital assets as on other exchanges.
We could send bitcoins bought on one exchange to another and then sell it on that second exchange. This opens up arbitrage potential which helps to keep prices relatively close to each other, but with wide spreads. Slippages, differences in liquidity, and other costs help explain why prices can be so different from cover to cover.
Likewise, Bitcoin’s all-time high is also different, depending on the source. CoinDesk’s Bitcoin Price Index uses a weighted average of prices to get a reasonable idea of where bitcoin is trading or trading at any given time. The average is taken from top 10 cryptocurrency exchanges, including Bitflyer, Bitstamp, Coinbase, and Kraken. If someone were to get a bitcoin quote from a major exchange at any time of the day, it might not be exactly at the BPI number, but chances are it is very close. However, volatile markets can produce occasional outliers.
For decades, if not centuries, good old-fashioned fiat currencies were primarily traded over-the-counter, first in physical markets, then using telephones and computer terminals. As in crypto, the exact price of a floating rate fiat currency is a function of supply and demand. So when futures exchanges use a benchmark rate to use for their forex contracts, they first decide which sources will be used and then connect them to some formula. In many ways, CoinDesk’s BPI can be viewed as a kind of benchmark rate for the price of bitcoin. And for the record, CoinDesk considers Bitcoin’s all-time high at $ 19,783. We’ll let you know if and when it gets there.
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