Category: 2. Where do crypto prices come from?

Once the buyer and seller have met at a point that satisfies both – either through Market or Limit Orders – a trade is executed which defines the price at that point in time.  Historic trades are also available as part of a Trading Display and can provide valuable retrospective information, but the most fundamental…

The Order Book is tabular and fluid so can be difficult to read, though as we’;ll see serious traders don’t do things simply by eye.  To help provide an easy way to interpret what the Order Book is saying, Bids and Asks and their relative amounts are visually represented in a Depth Chart. The Depth…

An exchange will share what price a buyer is prepared to buy bitcoin at, and how much they want to buy at that price. This is described as a Bid. Alongside the list of Bids, sorted by price, will be the Order Book of Sellers, providing the detail of sell Offers; the price and amount…

So we can now understand, in a very basic way, how bitcoin’s price is reached, through the interaction of buyers and sellers at exchanges. Exchanges aren’t however, the only way to buy bitcoin. Where an individual or organisation wants to buy or sell a large amount of bitcoin, they may not want to go through…

Where market conditions are the same, the price across exchanges won’t differ greatly, which is the sign of an efficient market. If not, users would simply buy at the lowest price on exchange A and sell at the highest available price on exchange B (aka arbitrage).  Compared to more mature assets – like gold or fiat…

The process of identifying a fair value for bitcoin is called price discovery. Every market participant will in theory be utilising all available information about bitcoin – Technical, and Fundamental – as well considering the behaviour of other market participants to discover the true price.  We’ll unpack the influences on price discovery later in the section,…

Staying focused on bitcoin as our example, price is a measure of the perceived value of bitcoin in relation to an existing currency (such as the Euro) and is established from the interactions of buyers and sellers.  Perceived value is entirely subjective, but the most common view is that bitcoin’s value comes from its potential…

What you’ll learn? Learn about price formation Understand the role of exchanges What price information an exchange provides Interpreting order books & depth charts In the first article of this series on how to trade cryptocurrency we distinguished between thinking about risk and opportunity – in terms of short term price volatility and long term…