Just as traditional products can be bought in different exchanges in different countries, and sometimes there may be price differences between these exchanges, however, there are multiple Bitcoin exchanges and there may be price differences between them. Arbitrage players take advantage of price differences to buy products in surplus markets and sell them in markets where there is a shortage. Similar opportunities exist in the Bitcoin markets. You wouldn’t expect this to be the case with digital merchandise, but where rubber actually fills the road, there are external factors. Of course, different exchanges in different countries operate in different fiat currencies, so for example, when we compare the price of Bitcoin in the US dollar between a Canadian-based exchange and a Hong Kong-based exchange, part of the difference is due to friction. exchange between these local currencies.
Let’s look at a concrete example. Know that you are a Canadian who has been examined by a Canadian Bitcoin exchange in accordance with your Client’s (KYC) and Anti-Money Laundering (AML) procedures and you have opened an account and entered Canadian dollars. You will be waiting to dive into the price of Bitcoin and then you will make a purchase. A few days or weeks later, the price hasn’t moved much, but you’ll notice that it shows some appreciation for a particular Hong Kong-based exchange; where the price has gone up by 10% since you bought it. Transferring Bitcoin from one wallet to another is cheap or free if you’re in no hurry, so it’s easy to take your Bitcoin exchange to a wallet – or if you have a wallet in that exchange. Opening a wallet in this exchange is an obstacle, but a small one, and an hour later, you sell those Bitcoins. Now what? You are left with a Hong Kong dollar balance in a Hong Kong-based Bitcoin exchange. That’s where the obstacles increase; you will probably have to go through the KYC and AML processes before you can get that fiat currency out of the Hong Kong exchange, and even then, how will you do it? Will they send you a check? Will it be forwarded to your Canadian bank? What do they charge for fiat withdrawals? What will your Canadian bank do with those Hong Kong dollars? Will they be exchanged for Canadian dollars? At what exchange rate? What fee? What are your tax consequences? This estimate of 10% of foreign currency does not seem so absurd.
These costs and problems are the friction that some of these imbalances create. If Indians are making purchases, offering the price of Bitcoin in their local exchanges can be a challenge for people who sell Bitcoin in other currencies to take advantage of the opportunity to trade. However, it is not insurmountable, and there are rewards for people who can figure out how to do it financially. Passengers who bank in several countries and need multiple currencies, for example, can save on these friction costs.
We find the same kind of opportunity in Bitcoin mining. Mining with the hope of making money consumes tons of energy because it costs so much more than most people generate. However, if you live in a situation where free energy (i.e., Venezuela), cheap (i.e., solar, or wind), or thermal output from mining can offset heating costs, you may find it profitable.
The usual thing about these opportunities is that your success requires you to find and fill a niche: to respond to a need that has not been served. Mine to speed up transactions for others when you have the economic advantage to do so. Exchange capital to provide capital to others who cannot move between currencies as easily as possible. Doing these things for others compensates you.