What is the law of supply and demand?
The value of an item or service is determined by how many people want to sell this item or service and how many people are interested in buying what’s being sold. Supply and demand, in other words. The availability of that being sold also has an impact on its value.
Diamonds, for example, are finite, many people want to own diamonds, and not that many sell diamonds, hence these shiny little rocks often costing an arm and a leg. Coal, on the other hand…
The same holds true for cryptocurrencies. When the price of Bitcoin goes through the roof, it’s driven by a spike in demand that exceeds supply. Bitcoin also has a capped supply due to a function called halving.
Investors often preempt market sentiment based on news that may result in a sell-off or lead to an increase in demand.