Definition ∞ Supply demand mechanics describe the fundamental economic principles that govern price formation in any market, including digital assets. Price is determined by the interaction between the available quantity of an asset (supply) and the desire or ability of buyers to acquire it (demand). When demand exceeds supply, prices tend to rise; conversely, when supply exceeds demand, prices tend to fall. These dynamics are constantly at play, influencing market equilibrium.
Context ∞ Supply demand mechanics form the basis of all market analysis in cryptocurrency, from basic price movements to complex on-chain metrics. News reports frequently analyze factors affecting supply, such as new token issuance or miner selling, and demand, such as institutional adoption or retail interest. The discussion often involves how these forces are currently balanced and what future shifts might entail.
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