VIRTUAL ASSET MARKET AND SUPPLY-DEMAND MODEL
Abstract
Virtual assets are driving a new stage of technological progress and becoming an increasingly vital component of the digital economy, gaining popularity globally. The price of these assets reflects not only their intrinsic value but also market trust, usage, and investor expectations. In this sense, prices signal the strength, reliability and demand for these assets within the ecosystem. The general mechanisms of price formation are often explained by the classical common economic supply-demand model. This paper examines price formation mechanisms in virtual asset market using a standard supply-demand framework with differentiated supply elasticity structures. By modeling Bitcoin, Ethereum and fiat-backed stablecoin within a unified microeconomic system, the study demonstrated that volatility patterns are structurally determined by protocol-level supply design. A numerical simulation and elasticity analysis reveal that Bitcoin behaves as a demand-driven asset due to near-zero supply elasticity, Ethereum exhibits hybrid adjustment through partially elastic supply and stablecoins reverse the classical adjustment mechanism by fixing price and allowing quantity to absorb demand shocks. An empirical specification using log-linear regression models is proposed to estimate demand and supply elasticity.
The study shows that the applicability of the model varies significantly depending on the type of asset and that the virtual assets market requires hybrid theoretical frameworks. The analysis is inherently theoretical due to the difficulty in measuring supply and demand in the virtual assets market. This market lacks transparency and investor emotions significantly influence prices. While the findings may not offer practical results due to the virtual assets market’s dynamic nature, the article provides valuable insights for economists, analysts, investors, and traders. It helps assess fair market value, potential risks and how changes in supply or demand could affect prices, offering strategic guidance for those involved in the crypto space.
The findings carry significant regulatory implications, suggesting that virtual asset supervision should be elasticity-centered rather than technology-centered. Policy recommendations include differentiated prudential treatment, reserve requirements for stablecoins and volatility-aware investor protection frameworks.
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References
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