Understanding the endogenous mechanism of variables from market Fluctuation

The “Intrinsic Drivers” of the Crypto Assets World

In the trading market, you will find that some price changes are driven by external information, but more often, the rise or fall of prices is actually the result of the interaction of multiple internal factors within the market. This economic concept is called endogenous variables.

In simple terms, endogenous variables refer to changes in a factor that are entirely determined by the internal relationships of the model, rather than being imposed externally. In the Crypto Assets market, coin prices are a typical example of an endogenous variable.

The Internal Logic of Coin Price Fluctuations

The price of a crypto asset is not determined out of thin air, but is jointly decided by internal factors such as trading volume, investor sentiment, and market demand. When more investors are optimistic about a certain coin and rush to buy it, demand increases, and the coin's price naturally rises. Conversely, if selling pressure increases, the coin's price will fall.

This is the result of market participants influencing each other - every transaction affects the price, and the price changes, in turn, influence investors' decisions.

Hash Rate: The Endogenous Variable of Mining Economics

Apart from coin prices, hash rate is another key intrinsic metric in the Crypto Assets network. It reflects the overall computational power of the network, used for mining and verifying new blocks.

The level of hash rate is directly determined by the number of miners participating in mining and the mining difficulty. When mining profits are high, more miners join, and the hash rate rises; when profits decrease, miners withdraw, and the hash rate will fall. All of this is the result of the interactions of miners' behavior within the network, rather than externally imposed rules.

From Traditional Economy to Crypto Applications

This concept is also prevalent in traditional economies. Taking a company as an example, its output scale, sales revenue, and profits are all endogenous variables. When a company invests in better technology and reduces production costs, output will increase, and profits will subsequently rise. These changes stem from a chain reaction of internal decision-making within the company.

Looking at the supply and demand market, the price and sales of goods mutually determine each other. If supply increases while demand remains unchanged, prices will fall; if demand surges while supply is limited, prices will rise. This dynamic balance is entirely a mutual constraint within the market.

Why is understanding endogenous variables important?

Understanding the mechanism of endogenous variables can help traders and investors more accurately predict market trends. When you identify the intrinsic driving forces in the market, you can better understand why prices fluctuate in this way, rather than being confused by sudden volatility.

In the Crypto Assets market, typical examples of endogenous variables include coin prices, hash rates, trading depth, and other indicators—they are determined by the collective behavior of market participants rather than being dominated by a single external factor. Understanding this is the key to understanding the market.