Chapter 2 · Why prices change
Why does the same BTC have a different price a minute later?
- Skills to practice
- Understand markets
- Read first
- Chapter 1 · Market
- 3D simulation
- None
Market scene
Ten people trade BTC privately in a group, one BTC per person per round. Every half hour they post their prices. The group leader pairs as many buyers and sellers as possible, and every completed trade uses the same price.
At 9:00 on Monday, five people want to buy and five want to sell:
| Buyer | Maximum payment | Seller | Minimum receipt |
|---|---|---|---|
| Zhou | 60,400 | Miner | 59,600 |
| Lin | 60,200 | Jie | 59,900 |
| Zhe | 60,100 | Fang | 60,050 |
| Young Zhou | 60,000 | Chen | 60,150 |
| Min | 59,800 | Ning | 60,300 |
The leader finds that 60,075 allows 3 BTC to trade. Zhou, Lin, and Zhe buy; Miner, Jie, and Fang sell. The group's “BTC price” is 60,075.
At 9:20, someone forwards a message from another group: a listed company plans to put a large amount of cash into BTC. Zhou, Lin, and Zhe see it, decide BTC is worth 2% more, and raise their bids by 2%. Miner and Jie also see it and raise their asking prices by 2%. The other five people have not heard.
At 9:30, the leader calculates again: 60,801, still 3 BTC. This time Fang, Chen, and Ning sell—the three sellers who have not seen the news.
At 10:00, the news is confirmed. Everyone raises their price by 2%. The clearing price is 61,277.
In one hour, without anyone setting an official price, BTC in this group has gone from 60,075 to 61,277. How?
Your decision
You are Fang. At 9:25 you hear the message elsewhere, but do not know whether it is true. You originally planned to accept at least 60,050. What do you quote for the 9:30 round?
Observe the result
Compare the three choices:
- Prices move in steps as information spreads. The price is 60,075 at 9:00, 60,801 when half the group knows, and 61,277 when everyone knows. It does not jump straight to the destination: each additional person updating a view moves it another step.
- Your quote itself changes the price. Fang only changes her ask, or skips one round, yet everyone's clearing price rises from 60,801 to 61,047.
- People who receive information slowly trade with people who receive it quickly. The three sellers at 9:30 are precisely those who have not heard the news.
Choice one loses out when the news is true and benefits when it is false. At 9:30 Fang does not know which will happen. The 10:00 outcome alone cannot tell you whether her 9:30 decision was good.
The mechanism
Where does the group's price come from? A relay:
- A message
- Some people change their views
- They change their quotes
- Their quotes meet the other side
- A new trade price
Everyone has a personal price: a judgment of BTC's value, plus their urgency. The leader does just one thing: find a price that allows the most trades. In the 9:00 table, any price from 60,050 to 60,100 permits 3 BTC to trade. The leader takes the midpoint, 60,075.
News cannot move the price by itself. First views change, then quotes change, and only then does the trade price change. Informed buyers pay more; informed sellers demand more. Both sides shift upward. Uninformed people still quote their old views, so the price first travels partway, and completes the journey only after everyone updates.
Price then becomes information itself. Before 10:00, someone who missed the message but sees the group price jump from 60,075 to 60,801 may wonder whether others know something. Price combines information scattered across individual minds into one number everyone can see.
How far it moves also depends on how much the other side is willing to trade. Add someone selling a large amount of BTC and the same good news produces a smaller increase. Chapter 1 introduced this; Chapter 14 examines it directly.
What it is called
Anything that changes people's judgments about price: news, data, rumors, and price itself. Information takes time to spread, so some market participants always learn earlier than others.
A person's view of what an asset is worth and what happens next. Expectations are invisible; they affect price only when expressed as quotes and orders.
An instruction to buy or sell with a price and quantity. Every “maximum payment” and “minimum receipt” in the group is an order. Chapter 13 explains how exchange orders queue and execute.
How many people, and how much quantity, are available to take the other side of your order. Better liquidity means the same news or order moves the price less. You met it in Chapter 1.
The process by which successive trades combine participants' information and expectations into a price. It takes time: faster information and more participants help the price reach its new level sooner.
Real markets
Tesla disclosed in its annual report to the US securities regulator that it had bought $1.5 billion of BTC. As the news spread, BTC rose more than 10% that day.
The announcement itself bought no coins. What moved the price was readers changing their views and then their orders.
The US Securities and Exchange Commission's social account was compromised and posted a false claim that spot Bitcoin ETFs had been approved. BTC rose rapidly within minutes. The SEC clarified the compromise and the price fell back. The actual approval was announced the following day.
Price reactions do not authenticate information. They aggregate what people believe.
Before opening, many stock exchanges collect bids and asks, then select a price that executes the largest quantity of orders as the opening price.
This is the group's method. Crypto trades around the clock and usually matches orders continuously, but the principle remains: price is where buying and selling quotes meet.
Hands-on
Here is the group. Select who has seen the news and change its size to see how the clearing price changes.
- ZhouMaximum bid 60,400Bought
- LinMaximum bid 60,200Bought
- ZheMaximum bid 60,100Bought
- Young ZhouMaximum bid 60,000Unfilled
- MinMaximum bid 59,800Unfilled
- MinerMinimum ask 59,600Sold
- JieMinimum ask 59,900Sold
- FangMinimum ask 60,050Sold
- ChenMinimum ask 60,150Unfilled
- NingMinimum ask 60,300Unfilled
The execution price maximizes filled volume. If several prices do so, take the midpoint of that range. Every fill uses this single price.
Course versionV1-docs; sourcelab:price-discovery；Chapter 2 / TRD-MKT-002
Records parameters and results at the click only; does not mean the experiment passed.View snapshot to save
- Select “Nobody knows,” then “The five people at 9:30,” then “Everyone.” What is each clearing price? Who sells in each round?
- Select only the five sellers and show them the +2% news. Why does no trade execute? What is the “price” at this point?
- Enable “A large holder joins the group,” then select those three settings again. Does the same news raise the price more or less? Why?
- Find recent news that visibly moved BTC. Examine the one-minute candles on any chart. Write down the news publication time, when the price began moving, and how long the move took.
Change one variable
There is no intermediate 9:30 state: the price moves straight from 60,075 to 61,277, still trading 3 BTC.
Nobody can exploit someone else's lack of information. Faster, more evenly distributed news brings a one-step adjustment and fewer opportunities to profit by knowing earlier.
All five sellers raise their asks by 2%. The lowest ask is 60,792, while the highest bid remains 60,400. Nothing trades.
Price has not disappeared; the two sides temporarily do not meet. Trading resumes when buyers update their views or someone concedes.
The 9:00 price becomes 59,850, with 4 BTC traded. Once everyone knows the news, the price rises only to 60,996 rather than 61,277.
More quantity available on the other side means the same news moves the price less.
Three depths
- FoundationWhy does the same BTC have a different price a minute later?Chapter 2
- AdvancedHow can order-flow and capital-flow data measure information's incorporation into price?Advanced B · Strategy research
- InstitutionalHow can large orders complete price discovery without revealing intent?Institutional
Trades produce the price: it is neither decreed by one person nor computed independently of trading. It is where current quotes meet.
When price changes, first ask: whose view changed? What do they know that I do not?
Measure the speed of price discovery: after news is published, how long does the move take? What happens to volume and directional buying/selling imbalance, or order flow? Researchers test whether order-flow imbalance reflects information seconds or minutes ahead.
The research question: which kinds of news does the market digest slowly? Slow digestion may leave an opportunity. See Advanced B · Strategy research.
Continue the artifact: Separate price information from flow information with observable clocks.
A large order is information: if others identify an institution's intended large purchase, they may buy first and push up its cost. Institutions try to conceal intent by splitting orders, using several venues, and trading without public quotes.
The boundary of information advantage: trading on undisclosed inside information is illegal in regulated markets. An institution's advantage should come from better research and faster processing of public information.
Continue the artifact: Define intent leakage and impact limits for a large order.
Questions to take away
Chapter self-test
Only half the group has seen the news and raised its quotes. The others still quote old views, so the adjustment is incomplete. Once everyone updates at 10:00, the price reaches 61,277.
The clearing price is where all quotes meet. Removing a cheap seller moves the possible clearing range up, from 60,801 to 61,047 at 9:30. Every order contributes to price.
The lowest ask becomes 60,792 while the highest bid remains 60,400. There is no overlap. Buyers must update, or someone must concede.
People who miss the news may infer from a sudden price increase that others know something, and update their own views. Price gathers scattered information into one visible number.
One idea to take away
Trades produce price: information changes expectations, expectations become orders, orders consume liquidity, and only then does price move.
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