What happens when demand > supply?

More buyers than sellers push the price up.

Alice wants to buy 100 Bitcoin. Exchange A has only 50 BTC in the order book. Exchange B has 500 BTC available. On Exchange A, her large order might move the price against her. On Exchange B, minimal price slippage. What does this demonstrate about liquidity?

Liquidity is the ability to execute large trades without moving the price significantly. Deep order books absorb orders better.

The order book lists bids and asks on an exchange.

Supply and Demand Dynamics

7 min readarticleIncludes quiz · 3 questions

Price moves when buyers and sellers meet. If more people want Bitcoin (demand) than people willing to sell it (supply), price rises. If the opposite, price falls.

Simple definitions:

•Supply: How many coins are available to sell right now.
•Demand: How many coins people want to buy at today’s prices.
•Liquidity: How easy it is to buy/sell without moving the price a lot.
•Order book: A list of buy and sell offers on an exchange.

Test Your Knowledge

This lesson includes a 3-question quiz (passing score: 75%).

Quiz functionality available in the mobile app.