Supply and Demand Definition
In the context of cryptocurrency and blockchain, supply and demand refers to the economic model that determines the price of a particular cryptocurrency. The supply refers to the amount of the coin that is available for use, while demand refers to the desire of buyers for this coin.
Supply and Demand Key Points
- Supply and demand principles apply to both traditional economies and the crypto market.
- High demand coupled with low supply often leads to price increase.
- Cryptocurrencies have a finite supply mentioned in their protocol.
- A sudden increase in supply with constant demand can lead to price reduction.
What is Supply and Demand?
Supply and Demand is an essential economic concept that underpins the workings of any marketplace, including cryptocurrencies. It’s the balance between the production of a resource (supply) and the desire of consumers to acquire it (demand).
Why is Supply and Demand Important?
Supply and Demand drives the value of cryptocurrencies. A high demand for a specific cryptocurrency increases its price, particularly if its supply is capped, like Bitcoin. Conversely, if there’s a huge amount of a certain coin but little interest from markets, the price can plummet.
When Does Supply and Demand Occur?
Supply and demand dynamics occur whenever a transaction is made in the market. For instance, a new investment in a cryptocurrency increases its demand and may push up the price if supply remains constant.
Where Does Supply and Demand Occur?
Supply and demand occurs in every market or exchange where cryptocurrencies are bought and sold, including major platforms like Binance, Kraken, and Coinbase.
Who Manages Supply and Demand?
Ultimately, the market participants conduct the balancing of supply and demand. While crypto developers can control the point at which new coins are minted, they cannot directly manipulate demand.
How is Supply and Demand Calculated?
Supply is usually straightforward to calculate as the total circulating supply of a cryptocurrency is public information. Demand, however, can be harder to gauge and it’s often determined based on market actions like buy orders and sales volume.
