One of bitcoin’s most notorious (and celebrated) features is its wild swings in price. What makes it the favourite of speculators also makes it unsuitable for use as a currency in most situations, since there’s no guarantee that the money you pay or receive will be worth the same the next day, let alone in a year.

That raises a few problems for bitcoin holders. Whilst it’s easy enough to find out the spot price of bitcoin – its value at any given time – gauging its true value, and what it might one day be worth, is an entirely different matter.

Bitcoin spot price

If you’re buying and selling bitcoins, then only one price really matters: the price on the exchange you actually use. There are many exchanges, including Coinbase, Bitstamp and BTC-e, and they all have slightly different prices. The situation is much improved now, since Gox left the picture, but there are still meaningful discrepancies between the exchanges. At the time of writing, for example, Bitstamp shows a spot price of $667; Coinbase $671 and BTC-e $650.

Differing prices

There are several reasons that exchanges show different prices. Bitcoin is still a relatively small market, and the total number of coins for sale at any time is a fraction of the total. The laws of supply and demand dictate that price will rise and fall as varying numbers of people buy and sell. Different exchanges have different volumes and different liquidity, which affects the price in the short term. If the prices diverge wildly then there are opportunities for arbitrage between the exchanges (buying at one and selling at another for a higher price) and this brings the difference back down again. But arbitrage isn’t as easy as it sounds, and the costs and timescales for transferring funds means that the exchanges inevitably show some variance in price.

Mean price

There are several places online where you can find an average price for bitcoin. This is typically taken from a combination of major exchanges, including Coinbase, Bitstamp and BTC-e – Just like the homepage of this website! It may be weighted by volume or other factors – so once again, these averages don’t always agree. Preev.com offers one measure; CoinDesk gives another in its BPI (Bitcoin Price Index). BitcoinAverage provides a third option. These are currently the best-accepted standards for the average spot price. The Winklevoss twins have also recently launched ‘Winkdex’, their own average of global bitcoin exchange prices. (BitcoinAverage has claimed that the Winklevii were heavily influenced by their own, open source API, and legal action may ensue.)

 

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