Unpacking the Mystery of Cryptocurrency Prices

The concept of price in cryptocurrency markets is more complex than it appears, and understanding how it's constructed can explain why prices sometimes behave strangely. The single number displayed next to an asset, such as Bitcoin or BTC, is a result of various factors including the last traded price, mid price, and the spread between them.

The spread, which is the difference between the best bid and best ask, is the first cost incurred on any trade. On major pairs, the spread might be just one or two basis points, but on thin mid-cap pairs it can exceed 100 basis points, resulting in a loss of over 1% before exchange fees apply.

Prices across exchanges differ due to various conditions such as illiquid assets, extreme volatility, and fiat and regional isolation. A price that looks anomalous on one venue might be a liquidity artefact rather than an opportunity.