Two analysts at the New York Federal Reserve Bank today published the results of analysis on how friction between bitcoin transactions could lead to price differences.

If true, their conclusion that fees charged by exchanges discourage arbitrage could help explain why many still don’t view bitcoin as a safe or stable store of value.

“There are significant frictions when bitcoins trade in exchange markets, resulting in meaningful and persistent price differences across bitcoin exchanges,” wrote Asani Sarkar, assistant vice president of the Federal Reserve Bank of New York, adding:

“These exchange-related frictions reduce the incentive of market participants to use bitcoin as a payments alternative.”

The argument goes that since every bitcoin is the same as any other bitcoin, they should all be valued equally. The price differences across exchanges should be offset by arbitrageurs buying bitcoin from one exchange for a low price and immediately selling it on another exchange at a higher price.

As a case in point, the bank presents data from BTC-e, Bitfinex, and Bitstamp, three of the larger bitcoin exchanges in the world. According to the authors’ interpretation of the data, bitcoins bought on BTC-e “consistently” trade at a lower price than those bought on either Bitfinex or Bitstamp at an average of 2% and as much as 20%

To account for this difference, the authors argue that fees charged by the exchanges for transactions, withdrawals and deposits of traditional currency disincentive arbitrageurs and lead to the price differences.

“These fees reduce the profits from arbitrage, and may explain the observed price differences,” the authors write.

The idea that bitcoin is a poor store of value compared to more traditional investment vehicles is nothing new, but companies like LedgerX are waiting for permission from the CFTC to create options that could help off-set risk.

An increased interest from family offices in investing in bitcoin could help provide the incentive to fix potential market problems.

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