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Global price fragmentation a risk for crypto

By
Redakcja
-
3 min reading

Coinbase has played an important role in introducing new users into the crypto space. Coinbase’s friendly onboarding process and status as a public trading company lets it to be seen as a more traditional investment platform to non-crypto savvy investors, leading to greater trust.

Coinbase has played an important role in introducing new users into the crypto space. Coinbase’s friendly onboarding process and status as a public trading company lets it to be seen as a more traditional investment platform to non-crypto savvy investors, leading to greater trust. 

Nevertheless, it looks like every week another article reaches the internet about Coinbase and its heavy fees for retail and professional traders and investors. This turns into a comparison of pricing between and a couple of different exchanges. Increasing competition brings a lot of stress for Coinbase and exchanges around the world to lower fees is increasing. Nonetheless, the largest pricing issue facing Coinbase and other exchanges is much bigger than some fee structures. 

Commodities are freely interchangeable as the market treats goods in different appearances as effectively equal. Basically, when a good or service is commoditized, there is no other difference between sellers as all other attributes are based on the price. Argument about trading fees is based on a belief that the price of cryptocurrency is static across all exchanges. Bitcoin (BTC) were a true commodity the trading fees would be the best issue to use and discussion around Coinbase’s fee structure would be feasible. Nonetheless, this point about Bitcoin is an issue within the market. The price of Bitcoin is not a static number and it can change across exchanges. Due to market fragmentation also, consumers are mostly not paid enough. 

Market fragmentation happens when contact and exchanges are handled badly. This ends up in differences in pricing between exchanges and a scarcity of liquidity in the market on a huge scale. When the prices change constantly, they include any difference in fees between exchanges. Investors and traders have been trained to only see the price on a single exchange. This fragmentation means true price of any cryptocurrency is its price on a single exchange plus the fees on that exchange in comparison to the same calculation on another exchange. This type of market trouble is not relatively new to the cryptocurrency market. These happen in bonds and equities markets but have been solved over time with regulation. The main reason for this issue is lack of communication between exchanges which ended up with a high degree of market fragmentation and for market to reach higher the exchanges should be seamless. 

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