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In a fragmented global market, price quotes are everywhere. That’s why CoinDesk created the Bitcoin Price Index (BPI). The current debate over exactly what the all-time highest price of the major cryptocurrency is shows how an industry focused on decentralization has a hard time finding a common pricing system that everyone can agree on.
Depending on who you ask, the price of bitcoin at any given time can be quoted in a range of hundreds of dollars. For this reason, some outlets say bitcoin has already eclipsed its all-time high three years ago, while others, including CoinDesk, say we’re still a long way off the mark. This is because just like the foreign exchange market, the cryptocurrency market is not centralized like, for example, the New York Stock Exchange.
Although individual cryptocurrency exchanges are called “centralized,” they are to the extent that the exchanges take place within their platforms. In fact, they are trading the same digital assets found on other exchanges.
You could send bitcoins bought on one exchange to another and then sell them on that second exchange. This opens up arbitrage potential which helps keep prices relatively close, albeit with sizable discrepancies. Slippage, liquidity differences and other costs help explain why prices can be so different across the board.
Similarly, bitcoin’s all-time high is also different, depending on the source. CoinDesk’s Bitcoin Price Index uses a weighted average of prices to get a reasonable idea of where bitcoin is or was being traded at any given time. The average is taken from 10 major cryptocurrency exchanges including Bitflyer, Bitstamp, Coinbase, and Kraken. If you were to get a bitcoin quote from a major exchange at any time of the day, it may not be exactly the BPI number but it is very likely to be very close. However, volatile markets can produce occasional outliers.
For decades, if not centuries, good old-fashioned fiat currencies have mostly been traded over the counter, first in physical markets, then using telephones and computer terminals. As in cryptocurrencies, the exact price of a floating rate fiat currency is a function of supply and demand. Therefore, when futures exchanges use a benchmark rate to use for their forex contracts, they first decide which sources will be used, then put them into a formula of some kind. In many respects, CoinDesk’s BPI can be thought of as a kind of benchmark rate for the price of bitcoin. And for the record, CoinDesk sees bitcoin’s all-time high at $ 19,783. We will let you know if and when it arrives.
