Just as one can purchase traditional commodities on a number of different exchanges in a number of different countries, and at times there may be price differences between these exchanges, so too, there are multiple Bitcoin exchanges, and there may be price differences between them. Arbitrage players take advantage of price differences to buy commodities in markets where there is surplus, and to sell commodities in markets where there is dearth. Similar opportunities exist in Bitcoin markets. You wouldn’t expect that to be so with a digital commodity, but where the rubber actually meets the road, there are external factors. Most obviously, different exchanges in different countries operate in different fiat currencies, so for example, when we compare the Bitcoin price in US dollars between a Canadian-based exchange and a Hong Kong-based exchange, part of the difference is due to the friction of the exchange between those various local currencies.
Let’s consider a concrete example. You’re a Canadian who has been vetted by a Canadian Bitcoin exchange in accordance with Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) procedures, and you’ve opened an account and deposited Canadian dollars. You wait for a dip in the price of Bitcoin and then you make your purchase. Days or weeks later, the price hasn’t moved much, but you notice that it’s showing some appreciation on a particular Hong Kong-based exchange; there, its price has gone up by 10% since the time you bought it. Transferring Bitcoin from one wallet to another is cheap or even free if you’re in no rush, so it’s a simple matter to move your Bitcoin to a wallet at that exchange – or it would be if you had a wallet at that exchange. Opening a wallet at that exchange is a hurdle, but a minor one, and an hour later, you sell those Bitcoins. Now what? You’re left with a balance of Hong Kong Dollars in a Hong Kong-based Bitcoin exchange. This is where the hurdles get bigger; you’ll likely have to go through KYC and AML processes before you can move that fiat currency out of the Hong Kong exchange, and even then, how will you do it? Will they mail you a check? Will they wire it to your Canadian bank? What do they charge for fiat withdrawals? What will your Canadian bank do with those Hong Kong Dollars? Will they exchange them for you to Canadian Dollars? At what exchange rate? What fees? What are your tax implications? That 10% appreciation on a foreign exchange suddenly doesn’t seem like such a windfall.