CryptopediaHow is crypto price determined?

How is crypto price determined?

Supply and Demand is the main factor that determines the value of anything that can be traded Cryptocurrency price follows the simple economics of supply and demand, but there are some other factors as well.

Cryptocurrencies have been accessible to people publicly for years, but many people start investing in them or many are old investors. Many people even don’t know about cryptocurrency that what is a cryptocurrency and how do they work? There are many terms used in the crypto industry you may don’t know about it like mining, market cap, supply, demand, etc. The oldest and most powerful cryptocurrency is bitcoin which was started back in 2009 by Satoshi Nakamoto. It’s based on the idea of decentralization and its uses of blockchain technology. We will discuss further how is crypto price determined with an example.

How cryptocurrencies are different from fiat currency?

First of all, you should know whats how these cryptocurrencies are different from fiat currency. So the main difference between cryptocurrency and fiat currency is that cryptocurrency is fully decentralized. Cryptocurrencies usually have fixed supply like bitcoin so their devaluation is mostly impossible. So main difference between them is that fiat currency is backed by a government or central banks and they are also declared as legal tender. As of now most countries didn’t accept it as a payment method and didn’t declare it as a legal tender. Other than that both are used as stores of value but cryptocurrency has an edge as it can be used all over the world. It can be easily used through your smartphone and you can transfer it in a matter of minutes. 

How is crypto price determined?

Crypto price or crypto value is determined by a relationship between supply and demand. Mostly the supply of a cryptocurrency is fixed or you can say limited. If anything has less supply has high demand same happens in cryptocurrencies. You can determine the market cap of any crypto coin by using this formula. Multiply the circulating supply with the price of the coin or token. Market cap = Circulating supply * Price.

Example of how is crypto price determined?

The price of any cryptocurrency is determined by two persons who are trading like you and me. How much we are willing to buy it for or sell it for. Suppose person A has 1 dollar so he stores his 1dollar in the network of computers. Person b wants to trade with a first person which is a person a. So person B says ok whatever cryptocurrency that you have purchased can I get it in 2 dollars?

If person A agrees to this price and says ok fine let’s do it you can buy it for 2 dollars. So now person A gets 2 dollars for his 1 dollar asset. So now that person B is holding that cryptocurrency worth 2 dollars. Now similarly person B can trade it to anyone else let’s say there is another person which is person C so now person B can sell it to person C. If person C agrees and says ok I will give you  3 dollars for it are you ok with it? Person B gives his 2 dollars worth of crypto to person C and now person B gets 1 dollar extra from his investment. After some time may B person b need the same crypto then he will go to person C and ask him will you give it to me for 4$? If person C agrees he will give it back to the same person and earn his 1 dollar on his investment. Know person B can again sell it back to person A. SO that’s how the value of the same currency which started at 1 dollar increased in value. It’s all determined y one thing which is value. The value that is set by us.

So if a person says I will buy it for higher then its price will go higher and if say I will not buy it for higher and you sell it for a lower price then obviously the price will go lower that’s how crypto price is determined.

How do crypto markets work?

So know it must be clear that it’s a misconception that bitcoin is a company and the owner set its price. Bitcoin is a commodity, not security and the market sets its price like you and me. Every cryptocurrency is not a commodity there is a huge risk involved in this but bitcoin is somehow safe. Bitcoin is treated as same as gold, silver, oil, gas, etc. So when more demand and it has less supply then the price will go up and in case of more supply and less demand price will go down. So it all depends on supply and demand.

Bitcoin is like every other market it is a commodity and the price is determined by supply and demand the exchanges are not manipulating. This is pure because of the supply and demand in each and we’re looking at the price of Bitcoin don’t Google it don’t look on the US market or whatever you can to get a reference but if you’re looking to buy a sold Bitcoin look at the exchange and get the price from the exchange were you going to be buying and selling that Bitcoin

Read: Free Markets Will ALWAYS Shine says, Jack Mallers

What is the technology behind bitcoin? How does it work?

In 2008 satoshi Nakamoto publish a white paper on bitcoin. A pear-to-pear electronic cash system. In this white paper, he publishes a vision that we know is called a blockchain. Originally blockchain was invented to make financial transactions easier. Satoshi Nakamoto didn’t like the financial system involving third parties or middle man so he invented this. Satoshi Nakamoto wants to make all transactions public and take a record of them their life which means getting rid of the middle man. To make this realistically you need to make sure that some of the transactions are real. 

Read: What is Web 3.0? A new era of the internet

So on a super high level, his idea was to store the time stamp of a transaction in an abstract data block. Take it like a chunk of data but these chunks can’t be deleted by anyone once it’s done. And there is not just one copy every person that uses the ecosystem carries the same copy. In that way, its formula is considered distributer among many pears or people and immutable which means it can’t be changed. I hope you understand know that how is crypto price determined.


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