Cryptocurrencies are your digital assets, therefore they are traded and exchanged just as fiat currencies and commodities are traded in the market. There is not a pivotal point of authority and governance when it comes to crypto supply and demand and how would we be able to determine its price and put certain legal control on it? As government-backed currencies work as legal tender, therefore the central authorities are responsible for their supply, minting, and demand control. With fiat currencies in circulation, we have come across terms such as inflation, deflation, and hyperinflation. Fiat currencies are backed by the government and its agencies, with regular policies made in legislation to control and improve the monetary conditions of any state.
But currency and its price in other currencies, such as in foreign exchange, are determined by the forces of demand and supply. Cryptocurrencies, however, are controlled and face the forces of demand and supply. The supply and demand rule implements all economic activities that we are surrounded with. From common goods to miscellaneous items and then to lending and advancing rates as well as interstate borrowing, and spending rates are all co-linked with the supply and demand rules. But things slightly differ for cryptocurrencies. But before we dive deep into crypto and its demand and supply, it is vital to know how demand and supply work.
The Supply and Demand Rules
Supply and demand are pure economic principles and apply in all spheres of our lives. They are the most basic pivots of economic theory that shape our micro and macro-economic cycles. The law of demand and supply defines how demand and supply are interlinked and how varied factors play a key role to place a dent and a curve in the demand and supply curves. To understand, when the supply of a certain commodity, whether eatable or currency, rises concerning price, the increase in supply is always seen as and fall in price levels.
This situation results when the supply increases while the demand remains the same. While on the other hand, if there is an increase in demand for a certain commodity or a currency, while the supply remains the same, the prices of the commodity or the currency increase. Now supply and demand keep on switching roles, with prices getting lower and higher until they reach the point of equilibrium.
The point of equilibrium is reached when the hype of a certain commodity or currency is set high at the start, but people are unwilling to buy at that level of price. As a result, the demand falls quickly, and it reaches a point of equilibrium. If the price of that commodity is reduced to a lower price level, then the forces of supply and demand are balanced out.
Exceptions to this Rule
However, from an economic point of view, the forces of demand and supply do play a key role, it is important to know that there are always some exceptions to this rule. The exceptions include that the demand and supply rules always apply when the consumers or buyers and as well as suppliers or producers are fully aware and educated about the product or commodity. Lack of information and awareness leads to skewed curves of supply and demand. Another exception is the free market principle, which is not possible in all scenarios. The governments always intervene to put certain caps
and implement regulations related to any commodity. To make the supply and demand rules completely implementable, the consumer’s knowledge and awareness elements are crucial along with the free economy model. The situations are hypothetical and do not happen in real economic situations, therefore they are termed Ceteris Paribus. The term defines that all other elements remain the same, then the model or supply and demand rules would fit in perfectly.
There are certain exceptional situations where the rule of supply and demand is not in full effect. Such as in completely monopolistic situations, the supply and demand rules do not function as there is one sole supplier of a certain commodity or a service, therefore consumers are bound to get it from the sole provider. Hence, supply and demand rules only apply in competitive market situations where there are businesses providing the same service.
Demand and Supply in Crypto
As with all other things, that store value in the eyes of the people is tradable and hence called assets. As Bitcoin launched in 2008, it gained leverage due to blockchain technology at the backend, there is a notion prevailing in the market regarding its value. As per some people, it is a mere bubble that would burst, and therefore it is not in any existence, form, or shape. Bitcoin is now acting as a store of value and works as the trailblazer of the market’s difficulties. All remaining altcoins came after this while the underlying technology of Bitcoin and other major altcoins lie in the blockchain and its transformations in coming times. Therefore, seeing the current and future trends, it is important to note that we will ascertain the supply and demand principles associated with the oldest and the latest projects. And how the supply and demand shifts affect the pricing for cryptocurrencies.
Just like traditional demand and supply theory, if there is a limited supply of a particular coin or token while there are many buyers and sellers in the market, the price of the coin or token would automatically increase. We can see the classic case of Bitcoin in past times, irrespective of why the downward trends occurred. The more valuable the currency is the more demand it would entail and hence there would be a hike in the price range. In crypto, the demand for a particular token or coin surpasses the current supply making it an overbought digital asset. On the contrary, if the supply is more than the buyers in the market, the digital asset in the form of a coin or altcoin would be oversold.
Can we Expect Equilibrium in the Crypto Markets?
The crypto markets and their coins are in nascent stages and yet to mature. As more and more platforms are opening, such as Bitflex, a completely new idea of hybrid exchange. Users can trade using the features of centralized exchange as well as enjoy decentralized exchange features. We cannot be sure about the situation of equilibrium or stability as these are two separate concepts that differ from each other. In real-world scenarios, no market is ever in equilibrium. With crypto, it would be quite early to expect equilibrium. Crypto is a highly volatile market, with countless financial technologies and blockchain initiatives coming up daily and determining the market principles. Yet the traders are facing a crypto bear scourge it is undeniable to notice that the market would recover from this stage and shift into the better and more promising stages. With that in mind and a practiced approach, the traders would have confidence in the sound crypto projects and the market might reach the point of equilibrium. But none of us can be sure about when that situation would occur. As crypto is a market open 24 hours and seven days a week, we need to know the figures, numbers, and charts and keep a close eye on the crypto cycles that would be hinting at the next bull run, or would we still wait? As no one knows yet, the numbers and the charts do not lie.
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