The crypto world is riddled with numbers — cryptocurrency prices and their all-time highs, trading volumes, number of tokens in circulation, market capitalization, the list goes on. Making sense of these numbers can be a daunting task that becomes even more complicated when the numbers from different sources do not match. 

Take ProShares Bitcoin Strategy Fund, the first Bitcoin futures exchange traded fund in the U.S. that launched last week. According to reputable media sources including CNBC, Bloomberg, Coindesk and Forkast.News, ProShares started trading at an initial price of US$40 on October 19. 

But data from the New York Stock Exchange where ProShares launched shows that it started trading at the initial price of US$40.88. This figure was also cited by credible media sources including Reuters, Blockworks — and Forkast.News, which cited this number in a separate news analysis

When you look at the numbers, the difference of less than a dollar seems minuscule. But when you try to calculate how much the price of ProShares increased on the first day of trading, the seemingly insignificant difference causes a not-so-minuscule discrepancy.

ProShares closed on the first day at US$41.94, according to all sources cited above, including New York Stock Exchange data. The percentage hike in the price of ProShares on the first day considering the opening price as US$40 is 4.85%. But when you consider the opening price as US$40.88, the increase in price is 2.59%. As far as price hikes go, the difference in percentage is quite significant. 

So which one is right? The answer is both. It seems US$40.88 is the correct opening price of ProShares because it corresponds with the NYSE data. But this does not necessarily mean that US$40 is the wrong opening price. According to Tony Sycamore, financial markets analyst APAC at City Index, the difference could be because of different opening prices on different trading platforms. 

There’s at least one trading platform, Blue Ocean Technologies, which allows access to ProShares trading to investors. These alternative trading platforms often have a difference in price. In fact, there’s almost always a difference, no matter how small, in the all-time high prices of Bitcoin, Ethereum or any cryptocurrency for that matter, depending on the price-listing site. 

Bitcoin prices reached a new all-time high last week, a day after ProShares’ debut. According to CoinGecko data, Bitcoin price reached US$67,276.79 on Wednesday. According to CoinMarketCap, however, Bitcoin price never breached US$67,000 and the all-time high is recorded as US$66,930.39 — a difference of nearly US$350. 

Check Markets Insider and you get a third Bitcoin all-time high figure — US$66,894.01 — a difference of over US$36. If you check the Bitcoin all-time high on Binance, it is US$66,998, but on Coinbase it is US$66,909.15.

That’s five different figures on five different sites for Bitcoin’s all-time high.

Here’s why crypto prices differ between trading platforms

It’s not just Bitcoin. Track any cryptocurrency and you will almost always find price disagreement by exchange. 

So which price is correct? The short answer is, all of them are correct. If you’re scratching your head and wondering how that’s possible, here’s the long answer: Cryptocurrency prices differ between platforms because of three key reasons — liquidity, average estimate pricing and inefficiencies in trading across exchanges. 

Liquidity and average estimate pricing: Although the crypto world has hundreds of exchanges operating across the globe, there’s a massive disparity in trading volumes between them. The biggest exchanges like Binance and Coinbase have the lion’s share of the market while the smaller exchanges lag far behind. 

Now, no cryptocurrency has a fixed price. Inevitably, their prices are governed by the law of demand and supply, just like any other goods or services. This is called average estimate pricing because it’s purely based on trading.

The law of demand and supply states that the price of any commodity, in this case a cryptocurrency, increases when demand for it increases and/or its supply decreases, and vice versa. 

The demand and supply on each exchange is different — a larger exchange with more customers will have greater demand and supply, than the smaller trading platforms. In other words, there’s a difference in liquidity across platforms. And these differences in liquidity between exchanges causes a discrepancy in the price of crypto tokens. 

Inefficiencies in trading across exchanges: The difference in price between exchanges sometimes provides lucrative arbitrage opportunities. This means that theoretically, a trader could buy at a low price at one exchange and sell for a higher price at another, thereby profiting from the difference. 

But in reality, trading across exchanges is a complicated process. Traders need large amounts of collateral to efficiently trade across exchanges. 

If traders could effectively use the arbitrage opportunities the difference in prices between the exchanges would be eliminated. This is because when traders start buying from one exchange that has a lower price, the increase in demand will push the price higher. Similarly, when the traders start selling at a particular exchange, the supply would increase and the price would go down. 

Because inter-exchange trades cannot be quickly executed the differences in price of crypto tokens linger longer. 

Lastly, although it might be a minor factor, the difference in trading fees can also affect the final trading price of tokens on each exchange. 

DeFi divergence

So these factors explain why crypto prices differ, but what about decentralized finance? Have you ever noticed how DeFi Pulse and DefiLlama reflect wildly different “total value locked” figures? For instance, at 6 pm Hong Kong time yesterday, DeFi Pulse indicated TVL as US$101.74 billion whereas it was US$242.15 billion on DefiLlama. That’s a yawning gap of more than a hundred billion dollars. 

The explanation is simple: DeFi Pulse monitors each protocol’s underlying smart contracts on the Ethereum blockchain only, while DefiLlama monitors the smart contracts on Ethereum and non-Ethereum blockchains, which together is a larger number. This is why DeFi Pulse’s estimation of TVL is always lower than DefiLlama’s.

There’s also a debate about the efficacy of TVL as a metric itself. Because protocol clones launch so frequently, tracking all of them is nearly impossible to get a concrete TVL figure. The presence of numerous types of assets used as collateral further complicates the calculation. But regardless of whether TVL is a good metric or not, you now know the secret behind the huge discrepancy between DeFi Pulse and DefiLlama figures. 

The crypto realm is evolving faster than ever with increasing regulations and adoption. As the industry matures, infrastructures will come in place that will aim to eliminate or reduce the inefficiencies in the trading process. When that happens, the differences in prices of crypto assets across exchanges will start to narrow down.