Why are the price fluctuations in the crypto market always interrelated? Understanding эндогенные переменные

Can on-chain data predict coin price Fluctuation?

In the cryptocurrency market, many traders try to predict price trends through a single indicator, but often fail. The reason is simple—factors influencing coin prices are not isolated. There is an interaction between coin prices, trading volume, market sentiment, and network activity, which in economics are referred to as endogenous variables.

In simple terms, endogenous variables are those factors that influence each other within the system. In the cryptocurrency market, a change in one variable will inevitably trigger a chain reaction in other variables.

How Cryptocurrency Prices Interact with Market Supply and Demand

Take the most common supply and demand relationship as an example. What happens when the market demand for a certain coin suddenly increases? Intuitively, the price should rise. This is exactly the endogenous dynamics in the supply and demand model – prices and trading volumes determine each other.

Specifically:

• Demand rises → Prices go up → Early holders take profits → Supply increases → Price pressure increases
• Decrease in demand → Price drops → Bottom-fishing funds enter the market → Supply is absorbed → Price stabilizes

These three variables (price, demand, market supply) are all endogenous; they shape each other within the system rather than being unidirectionally determined by external factors.

The Interdependence of Mining Difficulty and Hashrate

Another typical example of endogenous variables in a blockchain network is the relationship between computing power and mining difficulty.

When more miners join the network:

• Total hash rate increases
• The system automatically adjusts the mining difficulty to maintain stable block time.
• The increase in difficulty leads to a decrease in individual miner's earnings.
• Some miners are leaving the market, leading to a decrease in hash rate.
• Mining difficulty adjusted again

In this feedback loop, computing power and difficulty are endogenous variables determined by internal forces of the system, which constrain and dynamically balance each other.

Why market sentiment is also an endogenous variable

Many people believe that market sentiment is exogenous - determined by news, regulatory announcements, or tweets from Musk. However, a closer look reveals that sentiment itself is also a result of interactions within the market.

For example:

• Price increase → Investor confidence increases → More funds enter the market → Price rises further (positive feedback)
• Price drop → Panic sentiment spreads → Massive sell-off → Price accelerates downward (negative feedback)

In this process, prices, emotions, and capital inflows interact with each other and are all determined by the market system's internal endogenous variables.

Understanding the Implications of Endogenous Variables on Trading

Recognizing that the key factors in the crypto market are interrelated endogenous variables, traders should:

1. Do not rely on a single indicator — price, trading volume, and on-chain activity should all be considered comprehensively.
2. Understand Feedback Mechanism——There is a self-reinforcing and self-correcting cycle in the market.
3. Beware of extreme scenarios——When multiple endogenous variables move in the same direction, the Fluctuation will be amplified.
4. Pay Attention to Turning Points — When a certain variable reaches extremes, opposing forces may accumulate.

Overall, the main factors in the cryptocurrency market—coin prices, trading heat, network participation, and market sentiment—fall under the category of endogenous variables. They do not exist independently, but continuously influence and determine each other within the larger system of the market. Understanding this helps traders break free from the superstition of relying on a single indicator and establish a more systematic view of the market.