How does bitcoin and other cryptocurrencies price the value of the currency? How exactly does this work. Do buyers just set a max price at which they want to buy and sellers a min price at which they want to sell and they are matched? Or is there something more complicated at work? I'm really interested in understanding how this works. Any details would be much appreciated
2 Answers
That's exactly right. People who want to sell bitcoins typically set a minimum price and people who want to buy bitcoins typically set a maximum price. When they meet, a sale takes place.
answered Oct 3, 2017 at 5:46
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Thanks for your reply! I have 2 follow ups: 1) how is quantity matched? 2) how is the average price determined? Is it the average of the last x trades? Commented Oct 3, 2017 at 5:58
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@AntersBear Most exchanges list 2 prices: Bid/Ask. For peer to peer transactions it is common to take the average of these 2 numbers. The other 'average price' of an exchange purchase/sale is calculated weighted by volume, e.g. 10 coins @ 100 + 10 coins @ 200 = 150 AVG/coin. Queues are matched cheapest first (taker buy) or highest bid first (taker sale). Commented Oct 3, 2017 at 7:10
There are many different exchanges where you can buy bitcoins in exchange for dollars. Each will host different bids and asks, which can be transacted much like on a stock exchange.