Bitcoin Forum

I have one very stupid, amateurish question to ask... regarding some fundamentals.
I know when a lot of people buy bitcoin (or anything else), the price is expected to rise.
Also when a lot of people sell it, the price is dropping.

However, each transaction has 2 sides. If you sell, you must sell TO SOMEONE, and that person BUYS, the exact same amount that you sell.
Also, when you BUY bitcoin, you buy it from someone, who sells it to you...

Also, it would be logical to say that whenever buying rises, the selling rises for the same amount, and vice versa.
Actually, the amount bought and amount sold, at any moments are the same.

So how can then selling push prices down and buying push them up?

I understand that with buying "new cash enters bitcoin economy" for example, if I buy, I spend cash on bitcoin, and bitcoin economy gets stronger for my amount of cash.

But what actually happens. At the same time someone SELLS that bitcoin to me. So there are actually 2 events... or each transaction has two sides. Cash actually goes into his pocket.

Now I guess if buyer initiates transaction, he maybe needs to accept slightly higher price, so if it starts from buyer, this is that pressure that drives prices up. And if seller initiates transaction, he can accept slightly lower price, which pushes the price down...

I am not sure if this is good understanding...

http://en.wikipedia.org/wiki/Supply_and_demand

I know about supply and demand theory, and I have been studying it. I understand it theoretically. But I don't fully understand how it functions when you take into account real transactions.

When a lot of people who are holding bitcoins want to sell at the same time because they think the price is going to drop this will cause a chain reaction of people undercutting each other to be able to sell them before others do and the price drops even further. It's just fear feeding on itself and can get pretty ugly. We call this a panic sell off. The opposite can happen too when lots of people think the price is going to rise and they keep increasing their bids to be able to buy before others do. It's just a constant psychological warfare between fear and greed of buyers and sellers and the interaction between the two determines the market price.

OK.  On any given day, there are a certain number of people that want to sell and a certain number of people that want to buy at the going rate.  And there are people that need the price to move to convince them.

If the buyers exceed the sellers, the price needs to go up to convince more people to sell.

If the sellers exceed the buyers, the price needs to go down to convince more people to buy.

current price = $605

you have 10 bitcoins you want to sell.

I'm willing to buy them, but only for 600 each.   If you sell them to me at 600, you just pushed the price down from 605 to 600 by selling.

alternatively,

curent price = $605

I want to buy 10 bitcoins.

you have them, but are only willing to sell if I give you 610 each.  If I meet your price at 610, I just pushed the price up from 605 to 610 by buying...

its really that simple.

Sigg

Thanks, everybody. Seems more clear now.  :)

The price is not determined by any one trade but by what the collective of market participants are willing to buy and sell at with what prices and what amounts. If a trade moves the price down it's because in all of the market participants, there was nobody willing to buy that amount of coins at a higher price than where the trade ended up occuring. If there were market participants willing to buy all of those coins at a higher price, it would not have been possible for that trade to occur at a lower price and it would have executed at a higher price.  

There are two ways to buy:
a) put bid order and wait for somebody to fill it
b) fill somebody's ask order
Depth chart always has a gap between bid and ask orders. Trade "a" happens below the gap, while trade "b" - above the gap. First is considered "sell", the second - "buy".

When someone is buying they buy at the cheapest available price for the desired quantity.  The more buying that happens the fewer bitcoins remain at those cheaper prices, increasing the average price.

When someone is selling they sell at the highest available price for the desired quantity.  The more selling that happens the fewer USD remain at those higher prices, decreasing the average price.