Global Price Fragmentation – The Biggest Challenge for Crypto Market

| Updated on November 8, 2023

Cryptocurrencies, crypto trading, and investment have opened the Pandora box of wealth creation and accumulation for people that traditional and fragmented markets didn’t originally offer people. But there are fears that the cryptocurrency market will become too fragmented, partly due to the unregularized nature of the cryptocurrency space, and the different transaction fees on exchange platforms such as

For years, federal governments around the world have complained about the decentralization of cryptocurrency, fearing that the high fragmentation rate in the crypto market will cause more harm than good. The need for a central body, one that will ensure that cryptocurrencies are commoditized, has been on the front burner for many years. 

The issue of commoditization was made important because exchanges such as coin base charge high fees for transactions on their platform. Many crypto traders and investors have complained of the disparity in transaction fees across various exchange platforms. 

And because there is no central regulating body for cryptocurrency, the price of popular coins such as Bitcoin and Ethereum aren’t stable. 

For example, the price of Bitcoin could be $50,000 on with transaction fees of 0.5%, the total price of the currency increasing slightly, while the price is different on another exchange platform. 

This transaction fee disparity as well as the difference in cryptocurrencies’ prices has caused many crypto traders, crypto enthusiasts, and investors to call for the commoditization of Bitcoin and other major cryptocurrencies. 

What is Commoditization

Products are created to have different characteristics that make them special and separates them from other similar but different products. 

This differentiation in products means that the competition for market share is won based on benefits and special features. 

However, when a set of products compete based solely on their price differences, it means the product has been commoditized. 

Commoditized products all look the same, have no differentiation characteristics. When a product is commoditized, it becomes more liquid, meaning you can easily exchange the product for money. 

Fiat currencies, for example, are commoditized. You can exchange them quickly. 

But Bitcoin and other cryptocurrencies are not commoditized. There are still price differences based on exchange platforms. 

The price volatility poses a major problem for Bitcoin. There is no static price of Bitcoin across all the exchange platforms.

Bitcoin is not as liquid as one would expect from a currency that wants to become more than just a store of value but a trusted means of exchange. 

When a currency isn’t commoditized, there are high chances that market fragmentation will happen. 

What is Market Fragmentation?

Market fragmentation is the concept that the market is diverse and will break off into different segments over time. 

In the case of Bitcoin and its different prices across fragmented crypto markets and exchanges, price fragmentation poses a big hindrance to cryptocurrency’s adoption across nations and businesses. 

When people aren’t sure how much one Bitcoin is truly worth because there is no fixed market price, using Bitcoin as payment becomes difficult. 

The fragmentation rate in the crypto market, many analysts and cryptocurrency enthusiasts have said, would force the hand of regulatory bodies to clamp down on the market. 

While many people are happy with the decentralization of the market, claiming that it places the power of pricing on the hands of the users, and makes the point of entry for crypto traders and investors easy, others think otherwise. 

The other group of people feels the decentralization of cryptocurrency has worked so far but can only help the space achieve so much. For better growth, adoption, and stability in price, there is a need for a regulatory body. 

Fragmentation VS True Price

Price fragmentation means there are different prices of one product across different platforms and markets. When there is a high price fragmentation rate, investors are unable to properly bet on their investments, and the asset’s value, over time, dwindles. 

While fragmented price is about different prices for the same product across fragmented sections of the crypto market, the true price is unified. The true price is a result of the commoditization of a product. 

For Bitcoin to become more accessible and adopted, it needs to be commoditized. And with commoditization comes high liquidity, and high liquidity brings mass adoption. 

The budding question is: does price regulation come before market stabilization or vice versa? 

Cryptomarket Stabilization

The main cause of the high fragmentation rate in the cryptocurrency space is the lack of communication between the different exchanges. 

The market fragment issue isn’t unique to Bitcoin and cryptocurrency. There were times when stocks and bonds were fragmented in their prices. 

To gain market stabilization in cryptocurrency, many are clamoring for regulators. 

But the big questions are: 1) is the cryptocurrency market mature enough to become regulated? 2) if there is a regulator, doesn’t that remove the decentralization power many talks about? 

There is a high possibility that regularization might work in a highly fragmented crypto market, but the possibilities of regularization failing are equally high. 

Unified Crypto Market

The high fragmentation rate, caused by a lack of communication between the various exchanges, can be dealt with in a unified market. 

Exchanges such as are not very transparent in their communication with other cryptocurrency markets. Yes, they are autonomous businesses and bodies, but there is a need for the exchanges to communicate well. Effective communication drastically reduces the crypto market fragmentation.

Smooth and regular communications between these exchanges will help in stabilizing the highly fragmented cryptocurrency market and build trust in investors. 

If these exchange platforms are truthful enough, they can create a regulatory body that will be responsible for price regulation across all the exchanges. Plus the right technology will ensure Bitcoin and other cryptocurrencies can become more liquid. 

A global price for Bitcoin and other cryptocurrencies is badly needed. The sooner stability is placed on the price of Bitcoin and other cryptocurrencies, the better for nations to accept cryptocurrency as a legal tender.

Also Read- Guide to Cryptocurrency Conferences

Joseph Williams


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