The price of the same asset in different countries, can be radically different.There are many reasons for these distortions, but when it comes to bitcoin, it looks especially weird.After all people are supposed to be able to buy and sell their coins freely through exchanges at market price.The sheer force of demand and supply is supposed to set the price.In Nigeria this does not seem to be the case.At a glance, it seems that investors can engage in arbitrage with their coins in this African nation.However market distortions might not yield such a clear cut case. in Nigeria, will show that bitcoin prices range between 370,000 Naira – NGN – and 400,000 Naira.Depending on which USD to NGN rate Naira holders use, the value of a single coin can vary from $900 USD equivalent to about $1,250 USD.This is where the opportunity for arbitrage is, in theory.Right now, the price of bitcoin is around $750 USD, so in theory someone could sell a coin and make at least an additional 20% in US Dollar terms.

This simple calculation only tells one side of the story.The main reason why bitcoin can fetch upwards of $900 USD in Nigeria, is because the oil dependent country placed capital restrictions on the purchase of foreign currency.Lower oil prices have pushed the value of the Naira down, so many people flock to other currencies in order to maintain the value of their money – they hedge their risk.This means that investors seeking to gain from arbitrage, might have to take the profit in Nigerian Naira.Local investors with economic interests in Nigeria, might be ok with this, but international sellers might want to think twice before they sell their bitcoin.The seemingly easy to gain 20% premium, is relative.The USD to NGN rate does not float freely.In Nigeria, there is an official exchange rate for foreign currency buyers, and then there is the unofficial, black market rate.This is precisely what is generating the price distortions and arbitrage on bitcoin prices, and the reason why profits from arbitrage are relative.

This is how the BTC to NGN ratio works out in terms of US Dollars using the two different rates: quote.Bitcoin at $860 USD makes much more sense, given that prices elsewhere are at around $750 USD, because the problem is the foreign exchange regime as a whole.The demand for foreign currency must be outpacing supply, and given that the government placed restrictions on foreign exchange rates, then people must pay a premium in the black market to buy other currencies, including bitcoin.There are definitely people who are profiting from the arbitrage.The same has happened before in other countries that restrict the amount of foreign currency that its citizens can buy.Venezuela is probably the most prominent example, and the bitcoin economy advanced there over the last few years.Nevertheless, investors thinking about selling their coins in Nigeria for a profit, will risk having to keep their profits denominated in Naira, just as Venezuelans keep their profits from bitcoin sales in Bolivars.

They will find it difficult to take the money in US Dollars outside the country to buy some more bitcoin and make the same move again.The Nigerian economy is oil dependent.Oil prices are down about 55% over the last 2 years, and there are no signs of recovery.Any abrupt change in the price of oil, or any other kind of sudden instability in Nigeria, can erase profits from arbitrage as well.Thus, investors who engage in this kind of arbitrage, have to be prepared to re-invest in Nigeria or risk losing their profits to a stronger US Dollar.is bitcoin scryptThere is not a clear cut case for profit from bitcoin price arbitrage in Nigeria.kehalalan bitcoinPeople who thought that bitcoins could serve as either an investment vehicle or an alternative world currency got their heads handed to them on Thursday and Friday.bitcoin legal tender laws

That's when the price of the attention-grabbing crypto-currency got crushed, falling from a quoted $1,200 per "coin" to less than $600.At this writing, it's quoted on the Mt.Gox exchange at about $830.The whipsaw validates what we wrote about bitcoins just two weeks ago: they're useful as a medium of transfer, but even then you have to be nimble.If you were a Greek or a Spaniard using bitcoins to move money out of your home country without having to worry too much about your local foreign exchange or banking rules, and you figured on Thursday that you could get around to transferring your asset back out of bitcoins and into dollars or sterling--whoops!bitcoin 3tYou lost half your stake in a matter of hours.bitcoin client fedora 20The minimum time required to complete a trade in bitcoins is ten minutes; that's about how long you should hold them to keep exchange rate risk low.And if you were taken in by all the talk about bitcoins replacing gold as a storehouse of value, well, now you've been taken down.bitcoin temple bar

Much of that talk was generated by the peak quote of bitcoins last week at $1,200, which was sometimes described as equivalent to or even higher than the price of gold.That's an absurd statement, of course: $1,200 bought you an ounce of gold bullion, but on the bitcoin market it only bought you a putative claim on the outcome of a mathematical algorithm.The proximate cause of the bitcoin crash was a warning by China's central bank against treating bitcoins as legal tender.The Beijing government didn't ban bitcoins, however, stating that Chinese citizens are still free to engage in bitcoin transactions at their own risk.bitcoin-qt user guideThe bitcoin market's reaction underscores what Stanford economist Susan Athey has said--that the value of bitcoins lies in their potential to facilitate transactions.bitcoin live wettenThe more transactions you think can be done in bitcoins, the higher their price.kanye west bitcoin

Because the Chinese government's statement may reduce confidence in bitcoin trades there, the market plunged.Bitcoins will undoubtedly rise in quoted value again, and also fall again.The one inevitability about them is their volatility, to which there's no end in sight.What does this tell us about bitcoins' future as an alternative currency?This is the hope of gold bugs and other critics of central banks and their fiat currencies, but plainly bitcoins aren't anywhere near that stage yet, and probably never will be.Bitcoin advocates love to talk as though their new medium will be a counterforce to governments' tendencies to devalue their own currencies for economic gain.As Boston University economist Laurence Kotlikoff recently wrote: "Anyone familiar with current U.S.monetary policy might well wonder whether our country wouldn't be better served with bitcoins replacing the dollar."YouThe answer is no.Reach me at @hiltzikm on Twitter, Facebook, Google+ or by email.MORE FROM MICHAEL HILTZIK Obamacare success stories you haven't read The toll of the anti-vaccination movement, in one scary map Net neutrality is dead.