---
# System prepended metadata

title: <center><i class="fa fa-edit"></i> 4.7 Currency Exchange Markets </center>
tags: [Blockchain]

---

# <center><i class="fa fa-edit"></i> 4.7 Currency Exchange Markets </center>
###### tags: `Blockchain`
The following notes are taken from [Coursera](https://www.coursera.org/learn/cryptocurrency/home/week/2)

---
### Basic Market Dynamics
- Market matches buyer and seller
- Large, liquid market reaches a consensus price
- Price set by supply of BTC and demand for BTC

### Supply of Bitcoins
```
supply = coins in circulation (+ demand deposits?)
```
coins in circulation = fixed number, currently ~13.1M

:::warning
Include demand deposits when they can actually be sold in the market
:::

### Demand for Bitcoins
- BTC demanded to mediate fiat currecny transactions
:::info
**BTC "out of circulation" during this time**
Alice buys BTC for $
Alice sends BTC to Bob
Bob sells BTC for $
:::
- BTC demanded as an investment
    - If the market thinks demand will go up in the future
        - Price is low, demand for BTC investment is high
        - Price is high, demand for BTC investment is low

:::success
**Simple Model of Transaction-Demand**
```
T = total transaction value mediated via BTC ($/sec)
D = duration that BTC is needed by a transaction (sec)
S = supply of BTC (not including BTC held as long-term investments)

Supply side: S/D Bitcoins become available per second
Demand side: T/P Bitcoins needed per second
```
If the supply is higher than the demand, then there are Bitcoins going unsold. People who are selling will lower prices. 

**Prices will come down if supply > demand**

If the demand is higher than the supply, then people who want Bitcoins can't get them and will bid more, increasing competition. 

**Prices will go up if demand > supply**

The market eventually reaches equilibrium, or S/D = T/P, solve for P. 

**Equilibrium Equation**
```
P = TD/S
```

If D and S don't change, then P is directly proportional to D. 

If more people are buy Bitcoins as an investment, then S will go down by definition, causing P to increase. 
:::