Price Discovery

Price Discovery is the way in which the price of bitcoins, or any other cryptocurrency, is set again a regular fiat currency by basic supply and demand.

How does Price Discovery work?

Market conditions for bitcoins change over time, making the demand and supply of coins vary. If there is high demand and low supply (lots of people wanting to buy and few wanting to sell), then the price will increase. If the opposite conditions occur, when supply outstrips demand, then the price will fall.

On any given day, there will be a price at which buyers are willing to pay that matches the price suppliers are willing to accept. That price has been ‘discovered’ by the market.

Price Discover process

It is the process of Price Discovery that gets a particular bitcoin buyer and a particular bitcoin seller to move on from a general market price to a specific price for their transaction. Being a specific trade between two parties, more factors are taken into account then general supply and demand (which is setting a market rate).

Those factors could include timing, volume or location of a transaction. For example, a seller may be desperate to do a quick transaction to raise funds for another project. In which case he or she might be willing to accept a price slightly below the general market rate.