Crypto Spot Price 101

With Bitcoin, and any other crypto, price is determined on each “market” individually.

Binance: Bitcoin price A.
Uniswap: Bitcoin price B.
FTX: Bitcoin price C.

These prices can differ, so there’s not actually one single price for Bitcoin at any one time. They are all roughly the same, though, because of a thing called arbitrage. As soon as the price on market A differs by a big enough margin to market B, traders exploit the difference, hopefully ending up with more crypto or $ than they had before.

When they do that, it closes the gap in price between the two markets and the arbitrage opportunity is gone (until the next time they stray).

On CEXs there are order books (lists of buys and sells that get executed in the future) and there are market orders (buy or sell this thing right now). The order book in combination with market orders determines the price of Bitcoin on that particular market (exchange) at any one time. Each CEX has its own order book of trades, and traders making market orders, hence, the price can differ from one exchange to another.

On a traditional AMM (automated market maker) based DEX, you don’t have an order book. There are no lists of buys or sells that will be executed in the future. Price is instead determined by the balance of liquidity in a liquidity pool.

More FEG and less BNB in the FEG/BNB liquidity pool? FEG is cheaper.

Less FEG and more BNB in the FEG/BNB liquidity pool? FEG is more expensive.

Every DEX has its own liquidity pools for FEG, and therefore the price of FEG is different between every DEX, just like how price differs between CEXs. It’s just the how/why that is different.

So circling back to “how can FEG’s price go up as the circulating supply decreases”…

Traders either make market buy/sell orders on CEXs, or they buy/sell FEG on DEXs. It’s that simple. As FEG’s circulating supply decreases, scarcity of the asset increases, and as we add more utility to the token we should see demand increase.

In any market, when supply decreases but demand increases, you should know what happens next.

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