How crypto prices are set: supply, demand and the order book
Who decides the price of a coin? Learn how supply, demand and an exchange order book work together, explained in simple words with a worked example.
No person or committee decides the price of bitcoin or any other coin. The price is simply the level where the most recent buyer and seller agreed to trade. To understand that, you need two ideas: supply and demand, and the order book.
Supply and demand
If many people want to buy and few want to sell, buyers must offer higher prices to get coins, so the price rises. If many want to sell and few want to buy, sellers must accept lower prices, so the price falls. News, fear, excitement and big holders moving coins all change this balance minute by minute.
The order book in simple words
An exchange keeps a live list of everyone who wants to trade. This list is the order book. It has two sides:
- Bids: offers to buy, for example "I will buy 1 coin at $99."
- Asks: offers to sell, for example "I will sell 1 coin at $101."
The highest bid and the lowest ask sit closest together. The gap between them is called the spread. When a buyer accepts the lowest ask, or a seller accepts the highest bid, a trade happens. That trade price becomes the "last price" you see on the chart.
The order book shows asks of 2 coins at $101, 3 coins at $102 and 5 coins at $105. You place a market order to buy 4 coins right now. You get 2 coins at $101 and 2 coins at $102. Your average price is $101.50, and the last traded price is now $102. Your single order moved the price up by about 1%.
Market orders and limit orders
A market order says "buy or sell right now at whatever price is available." It is fast, but you might get a worse price than you expected. This difference is called slippage.
A limit order says "buy only at this price or better" (or "sell only at this price or better"). It waits in the order book until someone accepts it. You control the price, but your order might never be filled.
Why the same coin can show different prices
Each exchange has its own order book, so prices can differ slightly between exchanges. Websites that show "the" price of a coin usually show an average across several exchanges.
Liquidity
Liquidity means how easily you can buy or sell without moving the price much. A coin with a thick order book, with many orders close to the current price, is liquid. A coin with only a few small orders is thin, and even a modest trade can push the price sharply.
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