Why Are CoinMarketCap's Prices So Much Higher Than On GDAX?
If you use an exchange like GDAX, you’ll often notice that the price on GDAX is significantly lower than the price shown on Coinmarketcap.com (CMC). For this purposes of this article, we'll be examining the price of Ethereum (ETH).
So, why does Coinmarketcap show prices that are higher than GDAX or other exchanges?
It’s simple. Market inefficiencies.
To get an understanding of why Coinmarketcap’s prices are different, we need to first understand where the prices are coming from.
Coinmarketcap expresses a weighted average based on volume of ETH prices from all exchanges.
So why is this important? Well because the prices represent a weighted average price based on trading volumes from all major exchanges…. it means that if the price of ETH is significantly higher or lower on a particular exchange, it will drag the overall weighted average price (the one shown on Coinmarketcap) higher or lower - and in times of high trading volume, the distortion in price caused by outliers can be quite significant.
For example, let’s take a took at ETH prices on a variety of exchanges.
Notice anything weird? It looks like prices for ETH range around 730-740 USD on most major exchanges (e.g Binance, GDAX, Bitfinex, etc), except one: Bithumb which trades for 908 USD.
Well why would a price be different on different exchanges? Well, now we can return to that idea of market inefficiencies, because you see, Bithump is a Korean exchange. And the fun fact to note here is that Korean exchanges trade in a vacuum.
These market inefficiencies persist for a few reasons
- Because of how difficult it is to arbitrage between US and Korean exchanges.
- The inability for Korean citizens to open non-Korean exchange accounts
- The inability for foreigners to open a Korean exchange account
- Rigorous Korean AML (Anti Money Laundering) laws
- Unfavorable exchange rate with the Korean Won
- Disproportionately high amount of Korean citizens who trade crypto
In the unique and insulated trading environment that is Korea, the agreed upon rate between most market participants has been consistently 10, 20, 30, even 40% higher than average prices worldwide - and when prices increase quickly, driven by strong buying pressures, the disparity between Korean and worldwide prices is more significant.
Because Korea trades at a 100-200 dollar premium and represents a decent share of market volume, it causes a distortion in the weighted average price on CMC.
Hope this clarifies some confusion on why prices are different on CMC and various exchanges like GDAX.
One more thing to note!
The price shown on CMC can actually be lower than that shown on GDAX if the reverse happens. For example, if most exchanges show a price lower than GDAX, the prices on CMC will also be lower. In general, the GDAX price can be higher because of it’s unique position as a major fiat to cryptocurrency gateway. Because of this, Coinbase (GDAX) to enjoys a significant bump in trading volume relative to most other exchanges and as a result, a higher price.
Edit: CoinMarketCap has recently removed korean exchange prices from their weighted average and have normalized their prices to reflect coin prices on most other exchanges.