Role of Demand and Supply in the Market Mechanism of Bitcoin

bitcoin

A market is a place where buyers and sellers interact with each other to exchange goods and services. The main aim of a market could be summarized as being a platform that would serve as a facilitator of trade activities. However, it is not so. The functions of a market are not only limited to these, as the different stakeholders of the market have their own tasks to do and duties to fulfil. The various stakeholders of a market are buyer, seller, mediator, price of the commodity, quantity of the commodity, etc. Buyer purchases goods and avails services being put on offer by the seller. The mediator might act as a facilitator in the trading process. The price of the goods determines the quantity to be purchased by the buyer, as it would lead to the determination of the amount to be spent. But, in its intricate sense, there are two major players in the market that plan out the entire course of how the market works and its mechanism reacts. 

The two major players in the league are Demand and Supply. Demand is the quantity to be purchased by a buyer at a particular point of time, and on a similar note, supply is the quantity to be sold by the seller at a particular point of time. These two major players turn up together to decide the course of the market. The price to be sold at and the quantity to be traded, everything is determined with the help of these two factors. Having emphasized much upon the importance of demand and supply in market, get more details here we will discuss their role with respect to a commodity that gets traded on a market.

Bitcoin trading with respect to demand and supply

Bitcoin is a cryptocurrency that has been on the market for quite a long time now. People have been complete stranger to it, but, as it turns out to be, gone are the days. There was little information regarding the possibility of trading opportunities in Bitcoins. However, as the trade went up, it attracted the attention of every single investor towards it. It is the attraction of Bitcoins that results in every investor wanting to include Bitcoin as an investment in their portfolios. In the majority of the cases, it has been considered possible to count upon Bitcoins as positive investments with little or minimal rate of risk.

As it has been already mentioned that Bitcoins are traded on a free-market basis, it makes it easier to explain the role of demand and supply in determining the price and quantity conditions. It is basic knowledge that price and demand are inversely related, while supply and price are positively related. Hence, when the demand and supply curves intersect each other at a point, price and quantity to be sold are determined. If demand goes up, the price increases and the quantity to be sold increases too. This is because due to the high price, sellers are enticed to sell of their trading stock. This way, supply moves up to, bringing about equilibrium to the entire demand and supply concept. It is highly essential for an investor to understand how these curves behave, in case he is strongly motivated to invest in Bitcoins.

Knowing what to do and when

It is only when these curves are known, a person becomes so intellectual about speculating the market conditions. Investments are made with an aim of increasing the money value with trade, and if that is not on the cards, it is actually pretty much difficult for anyone to remain interested in Bitcoins any longer. The rule to move shall be pretty much easy.

If the investor speculates that the demand is going to get high and prices are going to shoot up, then it is a direct indicator for investing more and more money into Bitcoins. As soon as price start going sky high, the investor shall redeem his holdings in order to gain an extra return on investment. However, if the market I going to enter in a bearish phase, then it is imperative to initiate withdrawal of investments. This seems to conclude the investment mechanism to a much simpler level.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.