Bitcoin Price Hits All-Time High, Arbitrage & Market Instability Recovering

Posted in: Archive
April 28, 2017 4:59 PM UTC

Bitcoin price surpassed its previous all-time high price established at $1,277 and peaked at $1,377 on leading bitcoin exchanges such as Bitstamp. Yet, some experts and analysts stated that the bitcoin market was demonstrating instability due to incredibly large arbitrage opportunities in the US and China.

As revealed by several bitcoin market data providers, the US and Chinese markets, the second and third-largest bitcoin exchange markets in the world, hold over 37 percent of the global bitcoin exchange market share. Thus, bitcoin price listed on the two exchanges often has great influence over the global average price of bitcoin.

Currently, bitcoin price is averaged at $1,352, led by the price listed on the Japanese and US bitcoin exchange markets. Bitcoin is being traded at $1,342 in Japan and at $1,346 in the US. However, there exists some major issues with the US and Chinese exchange markets.

Just until yesterday, the US market showed a high premium trading price in comparison to the Japanese and Chinese markets. Over the past week, due to the ongoing conflict with US-based bitcoin exchange Bitfinex and its intermediary banks located in Taiwan, bitcoin has been trading at a much higher price in the US market. On April 27, some US bitcoin exchanges demonstrated a 10 percent premium over the Japanese and global exchange markets.

However, in a period of 48 hours, bitcoin price at the Japanese bitcoin exchange market caught up to the US market, nearly reaching parity with a few dollars of difference. Due to the increasing stability in the US market and the declining arbitrage opportunity in the US market, market turbulence and the confidence of investors recovered.

Although the US exchange market recovered, the Chinese market is still demonstrating a substantially lower trading price in the region of $1,100. This is likely the result of the Chinese government’s decision to significantly tighten Know Your Customer (KYC) and Anti-Money Laundering (AML) policies for bitcoin exchanges.

A lot of traders in China are utilizing bitcoin as a wealth management product (WMP) to protect their savings and move capital out of the country. Therefore, if there exists increased surveillance on bitcoin users, traders will move to over-the-counter and unregulated markets like LocalBitcoins. Coincidentally, the weekly trading volumes of LocalBitcoins China have been on the rise, as shown in the chart below.

Also, as a trusted Chinese bitcoin news source CnLedger revealed, local bitcoin exchanges are being required by the People’s Bank of China to carry out video verification and obtain sensitive documents such as bank account information from their clients.

If the KYC and AML policies in China continue to be tightened and users of major bitcoin exchanges are declined to withdraw their funds, more traders and investors will eventually switch over to OTC markets such as LocalBitcoin and result an instability in the Chinese bitcoin exchange market.

Featured image from Shutterstock.

Last modified: June 10, 2020 1:20 PM UTC

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Joseph Young @iamjosephyoung

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013.