Everyone at least knows a market as a place where you buy or sell goods and services. This simple and commonsense definition of a market does not just bring the parties involves into consideration. It takes a step further by looking at what these parties really do.
We can also look at a market by the composition of entities involved. Going by this, we would bring location and a little geography into our discussion. A market can also be thought of as a medium—a means to an end. It is a platform where buyers and sellers meet to exchange value.
From basic economics, we can talk of markets as consumer markets, business markets, financial markets etc. The nature of activities in such market defines these types.
Like mentioned, the cryptocurrency market can be thought of as a place where cryptocurrency is bought and sold. We can start to think of it in many ways. As a medium for selling of cryptocurrencies, as a place for buyers and sellers of cryptocurrency or just a platform for exchange.
In a very simple sense, some conditions must fulfill for the exchange of any kind to take place. If Bob wants to buy something from Alice for example, he must have what Alice accept as worthy of her assets. The same thing happens in the cryptocurrency market. Alice may not be the sole determiner of the price of her assets because Bob presence is also important to Alice. It is also commonplace for several buyers and sellers to make up a market. In such markets, the forces of demand and supply determine the price of goods and services.
Cryptocurrencies are digital currencies. They are assets because they can serve as a good store of value. Bitcoins and altcoins are examples of cryptocurrencies. We cannot see any of these physically. They exist as mere digits that people have decided to agree that change of any kind in these digits implies a change in value. The revolution of cryptocurrency and the blockchain changed every way we thought about money and transactions. The absence of trust makes it unnecessary to know the next person or leave anything in the hand of a fallible third party.
This is what happens in the cryptocurrency market. People buy and sell digital money on digital platforms. Alice has 1BTC and wants to sell for its equivalent in a different form. The buying and selling of cryptocurrency come from a number of factors. The most important of these factors is value. Others are need and arbitrage.
Value is an agreed worth. Gold is a good store of value because many persons are willing to exchange other valuables for it. Scarcity affects value. For example, gold would command less value if it were as common as sand or air. What will happen if the use of gold is not as much? The truth is—gold would be scarce, however, it will not be as valuable in the economic sense. This means that scarcity in the presence of need brings about value.
Arbitrage is taking advantage of price differences to make a profit. These differences in price may be a result of the forces of demand and supply, or differences in markets.
Cryptocurrency markets, like cryptocurrencies, are not visible. Exchanges in form of online platforms allow buyers and sellers use their platforms for a fee. This often affects the transaction on these platforms. Alice mentioned earlier may want to exchange her 1 BTC (bitcoin) for 100 XRP (ripple). Maybe she thinks ripple would double in a space of 7 months. Bob is a volunteer programmer for ripple’s blockchain network. He has earned 1000 XRP but he wants to try his hand at something else. He is thinking of bitcoins. Online platforms can connect Alice to Bob for a successful transaction. The same would happen if Charlie has cash but wants bitcoin to store value, and Nic has bitcoin but wants cash to meet a pressing need.
With this, you can have a good understanding of what cryptocurrency market is like. You may decide to read other materials on the web to learn more.