Price determines demand rather than demand determines price

Financial assets are not butter

In the economics lessons you may have come across a demand and supply curve. This theory can work with butter, bread, but certainly not with financial assets. On the contrary, if the price of the asset rises and if there is a lot of information about this phenomenon (for example, every day there are articles about the price rise in news), then it is highly likely that the price of that asset will rise. On the contrary, you can be convinced of the best and most undervalued asset of today, but its price may be so low that no one is interested in it (because if there was interest, its price would not be so low).

Keep in mind that people like to “jumping on the bandwagon” in financial matters no matter how irrational it might be. Common sense advises you not to try it, but the price usually grows with the growing number of people who are jumping on this imaginary train.

Search Trends

Below is a chart for the interest in the phrase “buy bitcoin” in google search. I deliberately do not show the development of prices, but if there is any doubt that the price really determines the demand, just look for price development. A price chart is available at coindesk.com with the option to set your own dates.

buy bitcoin trend 1

buy bitcoin trend 2

buy bitcoin trend 3

This trend is visible everywhere

In google trends, you can search for interest in any asset and it’s really worth noting that the price peak usually matches the peak of interest of the asset. Of course, keep in mind the following

  • Today’s status can only be the next step to the peak that occurs in a month, or it may be the maximum that will never occur again (the same can be said about the “bottom”)
  • If today there is no interest in an asset, it does not mean that the situation will change (or won’t change)

That’s why it’s good if you look at possible price trajectories using the Monte Carlo method. In the future nothing is guaranteed, but it does not make much sense to buy only because someone said something positive about the financial asset. What if that statement was made to get rid those assets at the expense of those who listen to his or hers advice?