Today, the price of bitcoin is quoted at Sh. 1,668,754, Internationally, but its price in Kenya is quoted at Sh. 1,984,991. So why is the price of bitcoin in Kenya significantly higher? And can this be fixed?
TL-DR: Because no one is mining cryptocurrency in Kenya. Because locals have not started their own cryptocurrencies to solve local problems, all the bitcoin in circulation in Africa comes from people who bought it at an exchange elsewhere for a profit.
This article was first written by Tawanda Kembo for Golix Blog. It has been edited. Follow him on Twitter
What is seen in African countries where there are bitcoin exchanges is that, although the price of bitcoin all over Africa is higher than it is on international exchanges, it tends to be lower in markets where there is more liquidity and higher in markets where there is less liquidity. In South Africa where the volume of bitcoin that’s trade is high, it’s around 5% higher than it is on other international exchanges but in places like Nigeria and Angola, where the volume of bitcoin that’s traded there is low, the price of bitcoin there is gets as much as 100% higher.
2. Demand exceeds supply
Liquidity alone does not influence price but liquidity and supply/demand together are what influence price movements. If we have a bitcoin supply but don’t have a demand for it, that does not force the price to go up. The price only goes up when the demand exceeds the supply. When demand exceeds supply, the demand will start competing with itself to buy the limited amount of bitcoin that is available on the free market — one where the highest bidder is the one who walks away with the bitcoin.
In such a market, only the people willing to buy bitcoin at higher prices are the ones who actually walk away with bitcoin. The price of bitcoin in Africa is only higher because we actually people willing to buy bitcoin at a premium. In the next section I talk about why.
3. The bitcoin in Kenya was bought on an exchange outside Kenya
When you think about it; the price of bitcoin that is quoted on an exchange is not the actual cost to acquire the bitcoin. If you were to include bank transfer costs when you make the usd deposit, the deposit fee the exchange charges and the transaction fees you’re charged when you actually buy bitcoin, the actual cost for buying bitcoin ends up being in the 3% — 6% range.
The costs are even higher if you’re buying with a different currency than the one that’s supported on the exchange because your bank starts making money from you on the exchange rate they use to convert your money to that other currency.