How much would you pay for a smartphone? If chicken prices suddenly surge, what do you do? At what price does a certain car become “cheap enough” that you actually want to buy it? Questions like these—things we ask ourselves in everyday life—are all connected to one core concept: “supply and demand”.
Demand is the desire and need buyers and consumers have for a product or service. When more people want or need something, we say demand for that product or service has increased.
Supply is the total amount of a product or service available for consumption or use. The more of it is produced and made available to buyers (instead of being stored away or hoarded), the more we say supply has increased.
Supply and demand have a major impact on the price of any product or service. Let’s use a simple example: chicken prices.
Imagine there are only a few chickens ready for sale, but a long line of people waiting to buy. In this case, demand is higher than supply. Two things can happen:
- Some buyers may offer a higher price just to make sure they get one.
- The seller or producer sees strong demand and gains pricing power, raising the price because they know someone will still buy it.
Whether the first happens or the second happens, the result is the same: price goes up. If both happen at once, prices rise even faster. Eventually, some consumers buy at the higher price, and others decide it’s too expensive and stop buying.
Now imagine another producer brings more chickens to market, and suddenly supply becomes greater than demand. In that case:
- The producer realizes inventory might remain unsold, so they cut the price to encourage more buyers.
- Consumers see that demand is lower than supply, gain negotiation power, and push for a lower price.
Either way, the price falls—and if both happen, the drop can be even sharper.
Understanding supply and demand helps us better understand our buying behavior and how real-world business economics work.
Now let’s apply the same logic to the crypto market.
Supply and Demand in Crypto
In Step 3 and Step 4, we learned that from 2008 onward, adoption grew in waves: first tech communities (especially IT and computer professionals), then everyday people, then small and large companies, then financial institutions, banks, and even governments. As people and organizations felt a need, they moved toward blockchain and toward investing in crypto assets. That “need” and the effort to satisfy it is demand.
This includes demand for using blockchain technology within a company or country—and demand for buying cryptocurrencies (especially Bitcoin and Ethereum) for investing and potential profit.
We also learned that the overall crypto market’s market value is still smaller than traditional markets like U.S. stocks or gold and silver. That’s why many people believe that as the industry matures, demand for blockchain and crypto may rise over time.
But what about supply? How are new coins produced and distributed into the market? What about the constant arrival of new blockchains and new crypto assets?
Exactly. In Step 5 and Step 6, we learned that you can estimate the supply schedule (production, distribution, and market injection) by reviewing a project’s whitepaper and its tokenomics.
For example, we know Bitcoin’s supply is capped at 21,000,000 coins. If demand increases over time while supply is tightly limited, the price tends to rise—at least over long horizons.
Unlike many commodities (which can often be produced more when prices rise), Bitcoin’s supply is severely constrained. That means demand changes can have an outsized effect on price. As adoption increases—through larger organizations, broader infrastructure, and in some countries even legal recognition—many people argue there’s only one long-term direction for price: up. That said, demand can fall in the short term and price can drop with it.
“Why Did Bitcoin Drop So Much Even With Limited Supply?”
For example, if you know Bitcoin’s all-time high was around $69,000 (as of late 2021), and you compare it with a much lower price at a later point (for example, around $17,200 in December 2022), you might ask:
“Why did Bitcoin drop about 75% even though supply is limited and demand is rising over time?”
One answer is: you should analyze performance across a meaningful time window and compare it with other assets—exactly what we did in Step 4.
But there’s another big answer:
How Global News and Macro Conditions Affect Supply and Demand
After the 2008 global financial crisis, we heard fresh “crisis” signals again starting around 2021, with major increases in inflation and interest rates in 2022 in the U.S. and then in Europe.
When people’s top priority becomes “surviving the crisis,” they often reduce exposure to high-risk assets like crypto and even stocks. Demand for crypto drops sharply, while demand for cash and essential spending (food, clothing, daily needs) rises.
During economic stress, some investors shift into precious metals like gold and silver to protect purchasing power—raising prices through supply-and-demand dynamics. Some investors also buy Bitcoin at depressed prices, but if broader demand remains weak, price may not immediately rebound.
I believe a day will come when, during a global economic crisis, people will buy Bitcoin instead of gold. That won’t happen unless crypto becomes as usable in everyday life and business as traditional currencies are today.
Sometimes markets can jump briefly (even for minutes or a day) after positive news, creating a short-lived increase in demand and prices for risk assets like stocks and crypto. But broad economic reality often “absorbs” that optimism, and prices can fall again.
We should understand that exiting an economic crisis doesn’t happen overnight with one piece of good news or a single positive data point. In crises, we must be patient—and avoid high-risk investments until conditions stabilize.
Pump-and-Dump Games and the Trap of Fake Supply & Demand
In any market, you must watch out for artificial or “manufactured” demand.
Imagine a group of opportunistic sellers hoard cars in private parking lots, then claim on Instagram and Telegram that “only a limited number” are available. Even if real supply is abundant, this creates a scarcity illusion. Buyers rush in (demand rises), and sellers may drip-feed inventory into the market to keep the illusion alive—pushing price up. That’s a form of price “pumping.”
Common terms used for a sudden price surge include:
- Pump
- Spike
- Hike
- Hype
Any intentional activity that forces the market away from its fair and free behavior is called “market manipulation.” In many countries, market manipulation is a crime.
Now imagine a different scenario: a rumor spreads that “millions of dollars” are about to be injected into the FX market, so people panic-sell their dollars before price falls. Their selling increases supply, and price can drop sharply because buyers refuse to pay higher levels. In finance, dumping means selling a large amount in a short time—often causing a steep price decline.
A smart consumer and investor—by increasing patience and knowledge—doesn’t fall into fake pump-and-dump traps set by market makers and big players.
These fake supply-and-demand games happen a lot in crypto—especially in unknown, low-credibility coins. You might see social posts claiming a token is up “several hundred percent.” You check, and it seems like everyone is talking about it. That can trigger greed and FOMO (“Fear Of Missing Out”), and you buy without reviewing the fundamentals, the whitepaper, or tokenomics.
But sometimes that price increase is artificial—created by the project team or insiders buying at higher prices to manufacture “demand.” Some social pages are bots, paid promotions, or coordinated marketing—designed to pull you into buying high.
Pumps are common in tiny market-cap assets, but dumps can happen in both low-cap tokens and large-cap assets like Bitcoin.
For example, large crypto holders—often called Bitcoin whales—may want to accumulate more coins. Instead of buying at market price, they sometimes create fear by sending coins to exchanges (increasing perceived supply), then selling enough to push price down. Retail investors panic, sell lower and lower, demand collapses under FUD (“Fear, Uncertainty, Doubt”), and the price drops.
At that point, ask yourself: “If everyone is selling, who is buying all these coins at low prices?” Answer: often those same big players—and also a smaller group of disciplined, informed investors.
The purpose of these examples (cars, FX, crypto) is not to scare you away from financial markets. It’s to tell you this:
By understanding yourself, reducing emotional decisions, and avoiding traps of fear, greed, FUD, and FOMO, you can trade volatile assets in alignment with major players—and “a little after them” in timing.
If you want to practice your fundamental analysis skills, pick any coin or token and email me the results of your analysis as plain text (no attachments). I’ll review it and share my feedback.
Some suggested crypto assets to practice on (to learn the diversity of the market):
Coins (with their own blockchain):
- Ethereum (ETH)
- Solana (SOL)
- Avalanche (AVAX)
- Polkadot (DOT)
- Aptos (APT)
- Binance Coin (BNB)
- Tron (TRX)
AI & IoT-related blockchains/tokens:
- IoTeX (IOTX)
- Hedera (HBAR)
Centralized and decentralized exchange-related assets:
- Binance Coin (BNB)
- FTX Token (FTT)
- WOO Network (WOO)
- PancakeSwap (CAKE)
- Uniswap (UNI)
- dYdX (DYDX)
Meme coins (“joke coins”):
- Dogecoin (DOGE)
- Shiba Inu (SHIB)
- Bonk (BONK)
“Dead coins” and “shitcoins”:
- Squid Game (SQUID)
Metaverse and gaming tokens:
- Decentraland (MANA)
- Star Atlas (ATLAS)
- Bloktopia (BLOK)
- Gala Games (GALA)
Storage and file-sharing tokens:
- BitTorrent (BTT)
- Filecoin (FIL)
Sports fan tokens:
- Chiliz (CHZ)
- Juventus (JUV)
- FC Barcelona (BAR)
- Paris Saint-Germain (PSG)
In the 21 steps, Steps 5 to 7 answer one of the most important strategy questions: Which crypto should we buy?
In Step 8 through Step 11, you’ll learn when it’s more suitable to buy a financial asset (stocks, USD, gold, Bitcoin, and crypto).
Worth Noting
Supply and demand is the “engine,” but liquidity is the fuel. In crypto, price can move violently when liquidity is thin (especially in smaller tokens). Even a moderate buy or sell can cause a large price swing when the order book is shallow.
Short-term demand is often narrative-driven. The same asset can look “unstoppable” during hype and “dead” during fear. That’s why linking supply/demand with fundamentals and tokenomics is critical.
Beware “social proof” traps. Bots, paid influencers, and coordinated campaigns can manufacture fake demand. Your defense is simple: read the whitepaper, check token distribution, and verify real adoption signals.
Market makers are not your enemy—but you must understand them. They provide liquidity, but their incentives differ from retail investors. If you trade emotionally, you tend to become the “exit liquidity.”
Macro matters more than most beginners realize. When global liquidity tightens (risk-off), demand for high-volatility assets drops first. When liquidity loosens (risk-on), demand returns fastest to high-beta assets.
Trending and Future Insights
Demand is becoming more institutional—and more regulated. As crypto integrates into traditional finance, demand increasingly flows through compliant rails (regulated exchanges, custody, ETFs, and bank-like platforms). This can stabilize parts of the market—but it can also concentrate liquidity into “approved” assets.
Supply shocks will keep defining cycles. Fixed or predictable supply schedules (like Bitcoin’s halvings discussed in Step 6) can amplify long-term demand trends. But short-term cycles can still be dominated by macro stress, leverage flush-outs, and liquidity crunches.
Stablecoins will shape demand patterns. Many crypto inflows and outflows are mediated through stablecoins. In future cycles, stablecoin issuance/redemptions may be one of the clearest “demand gauges” for overall market risk appetite.
AI will amplify both opportunity and manipulation risk. AI tools can detect anomalies (wash trading, coordinated pumps), but they also make it easier to generate persuasive scams, fake communities, and rapid hype narratives. Investors who rely only on “what’s trending” will be more vulnerable.
On-chain transparency will matter more. Over time, demand will favor projects with verifiable usage, transparent treasury behavior, and sustainable economics—because on-chain data makes “truth” harder to hide (even if it’s still easy to confuse newcomers).
Crypto demand may broaden beyond speculation. The biggest long-term shift will be when real utility (payments, settlement, savings, lending, tokenized assets) becomes mainstream enough that demand doesn’t collapse entirely during every risk-off period.
FAQ
Q: What does “supply and demand” mean in crypto?
A: It’s the same core idea as in everyday markets: demand is how much people want to buy, supply is how much is available to sell. In crypto, supply is often defined by code (tokenomics), while demand changes based on adoption, liquidity, news, and macro conditions.
Q: If Bitcoin supply is limited, why can the price still crash?
A: Because price is set at the margin. In the short term, demand can drop sharply (risk-off, fear, liquidity tightening), leverage can unwind, and large holders can trigger sell cascades. Limited supply helps the long-term thesis, but it doesn’t prevent short-term drawdowns.
Q: What is a “pump and dump” in crypto?
A: A pump is an artificial or coordinated push upward (often via hype and insider buying) to lure buyers in. A dump is the sudden selling that follows, which can crash the price—leaving late buyers with losses.
Q: What are FOMO and FUD, and why do they matter for supply and demand?
A: FOMO (“Fear Of Missing Out”) can create irrational demand and push prices up. FUD (“Fear, Uncertainty, Doubt”) can collapse demand and push prices down. Both are emotional accelerants that big players often exploit.
Q: How can I tell whether demand is real or fake?
A: Check fundamentals (Step 5), tokenomics (Step 6), distribution/unlocks, real usage, and credible adoption signals. Don’t rely only on social media hype.
Q: What’s the practical takeaway of Step 7 for my strategy?
A: Supply/demand explains why price moves, but your edge comes from staying disciplined: avoid emotional trades, understand macro context, and align your timing with real demand cycles—then use the next steps (Step 8 to Step 11) to learn better entry timing.