The price of Bitcoin is subject to fluctuations and variations across geographical locations, times of the day and even transactional portals. This fact seems to contradict popular opinion, which says Bitcoin holds a universal value throughout the world. The value of Bitcoin is governed by the laws of supply and demand. This simply means that the price of Bitcoin would be determined only by the amount the market is willing to pay for it. The higher the number of people interested in buying Bitcoins, higher would be its price. On the other hand, if a lot of people want to sell Bitcoins, that would reduce its price.
What factors determine Bitcoin’s price across time and exchange portals?
While the value of Bitcoin is dependent on a multitude of factors, market size, and nature, along with the exchange volume and price paid for the entry into the Bitcoin market are some of the major influencers. The market for Bitcoin is relatively small. Added to that, Bitcoin is a fast, borderless and decentralized cryptocurrency, with an asset class attached to it. With its undeniable utility, it is evident that as and when more people start using and understanding Bitcoin, it will create a more diverse trade network with an exponentially higher number of merchants dealing in Bitcoins.
The ongoing interaction between Bitcoin buyers and sellers at a given point in time determines its price at that instance. If a certain market believes that the price of a certain commodity like real estate or Bitcoin will increase in the future, they are more likely to pay for it now. While the traders determine the value of Bitcoin at a given point in time, it is important to note that its price also varies across transactional portals. This is again dependent on the number of traders active on a portal for Bitcoin transactions. Moreover, Bitcoin exchanges and organizations dealing in Bitcoins determine an upper and lower limit based on what value a seller is willing to sell it for and what amount a buyer is ready to pay for it.
The price is finally determined between these limits depending on the pricing strategies adopted by the company. These strategies will differ across organizations depending on their internal policies, long-term plans and factors like taxes, margin and the market nature of the country these portals operate in. A lot of these third-party companies analyze Bitcoin and other distributed commodities to come up with predictions based on machine-learning driven financial and mathematical algorithms. The information procured from these analyses can manipulate the price of Bitcoin across exchanges too. An additional difference in prices can be attributed to imbalances between groups leading to microeconomic differences where companies might price Bitcoin higher to earn a profit off the difference between one microeconomy to other.
Why is the price of Bitcoin higher in India?
At a given point in time, both buy and sell Bitcoin prices in India are higher than the international market. This is mainly due to the fact that the demand for Bitcoin is a lot higher in India than what can be perceived in the global market. Bitcoin prices vary across all exchanges even internationally. The price of Bitcoin determined on Indian exchanges is significantly higher than the other players in the market because there are not enough sellers in India willing to sell at a lower price. Thus, the two options left are increasing the selling price till a point where sellers are willing to sell their Bitcoins, or keep the buying price very high to discourage buyers.
Another major reason behind the high price of Bitcoin in India is the nature of its currency — INR — that operates capital controls. This means that the Indian economy has residency-based measures like transaction taxes, limits, and prohibitions used to regulate flows from a capital market into and out of the country’s capital account. In other words, if you buy Bitcoins worth $1000 in India (roughly 65,000 Indian Rupees), you cannot get that money back out to the western exchanges to rebuy your Bitcoin at a lower price plus profit. However, the hawala system to move money in India facilitates this transaction internationally. With demonetization of the Indian currency, the normal hawala fee has risen from 15–20% to a 30–40% charge. The restrictiveness of INR has led to a higher exchange rate between Bitcoin currency and INR.
How can we even the price difference out?
Owing to the completely free nature of the Bitcoin market, an arbitrage would cause the difference in prices between the Indian and international values to settle. If the restrictive regulations on INR were to be removed, the markup added by the Bitcoin market to compensate for the lower value of INR (as compared to official exchange rates in other countries) would be eliminated on its own, thus reducing the price of Bitcoin in India.
Furthermore, a growth in the number of Bitcoin sellers would ensure a higher supply of Bitcoins in the Indian market, thus decreasing the price. Putting a downward pressure on the price by increasing the supply and decreasing the demand would also enable Indian Bitcoin wallet-providers to offer Bitcoins at a price closer to the international price standards.
Does it matter though? If buying prices are higher in India, so is the selling price. As an individual, you stand to make the same returns.