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Market Price Fragmentation – A Challenge For Cryptocurrencies

Coinbase, the prominent cryptocurrency exchange, has been instrumental in attracting new customers to the cryptocurrency world. Coinbase has a user-friendly induction procedure for new customers and is also a publicly listed corporation.

This implies that it seems to be a traditional investing trading platform, including to investors who are unfamiliar with cryptocurrency.

However, it appears that every single week, users will come across stories denouncing Coinbase and the exorbitant fees it costs users and traders. As the article progresses, it provides a comparative analysis of the pricing of several platforms. Coinbase vs. this, Coinbase vs. that etc.

Coinbase is under intense pressure to cut its pricing as rivalry among cryptocurrency exchanges grows. Nonetheless, the biggest problem with Coinbase and other platforms is more complicated than a simple charge structure change.

Let us now discuss commoditization and pricing. What exactly are commodities? They are just negotiable things. It enables the marketplace to treat items with varying characteristics as equivalent. Whenever a function is commoditized, the only thing that can be bargained is the price.

In this situation, there will be no longer distinction amongst vendors.

When opponents debate trading costs, they assume that cryptocurrency values are constant across all platforms. Exactly like commodities. Consider Bitcoin to be a commodity. If this were true, the only problem would’ve been trade costs. As a result, the criticism levelled against Coinbase’s pricing structure is justified.

However, this view of Bitcoin reveals a root issue in the cryptocurrency industry. Bitcoin’s price may not always match up between exchanges — they might vary. This is related to market disintegration: customers are unknowingly overpaying or underpaying even.

But what is the connection between fragmentation and actual prices? It happens when the interaction between various exchanges is insufficient. This might result in price differences across exchanges and a low liquidity in the entire marketplace.

When pricing differences are severe, they overwhelm any variation in exchange charges. Dealers and investors are only taught to look at pricing on a single exchange platform. The real price of a cryptocurrency is made up of two parts.

It contains its price on that specific exchange platform, as well as the costs associated with that exchange. Price fragmentation means that this value is being contrasted to another exchange’s equivalent computation.

Assume that the price of Bitcoin is down on one particular exchange platform. In that situation, it makes little difference if the exchange has minimal costs. Assume a single Bitcoin costs 60,000 dollars with a 0.50 % charge at one exchanger.

In that instance, a user may wind up spending roughly 60,120 dollars for a Bitcoin on some other exchange with a 0.30 % charge. With so many platforms, the price disparity might become significant.

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