How endogenous variables shape the crypto market

The dynamics of markets and their internal components

In any economic system, there are elements whose evolution is determined by the interaction of other forces present in that same system. These elements are known as endogenous variables, and they are fundamental to understanding how both traditional and digital markets function.

Unlike exogenous variables ( that come from external factors ), endogenous variables arise from the internal relationships between different components of the model. Their behavior is not independent but is directly connected to other elements of the ecosystem.

Examples in the traditional market

Let's take a classic model of buying and selling. Here, the price of the product and the quantity traded are endogenous variables. When more people seek to acquire a good while the available quantity remains the same, the price tends to rise naturally. In the opposite scenario, if supply increases but the interest of buyers remains constant, we observe a downward pressure on values.

In the context of a company, the level of manufacturing, total revenue, and profitability represent endogenous variables. These indicators change according to internal decisions such as investment in modern equipment, management of raw material costs, or adjustments in commercial policy. If a company decides to expand its production capacity through technological innovation, both production and profits will experience significant transformations.

The critical role in cryptocurrencies

The world of digital currencies offers a perfect laboratory to observe endogenous variables in action. The value of any token is influenced by multiple internal market factors: the intensity of transactions (volume), the general mood of participants, and how much the market is willing to pay at any given moment.

When investor interest in acquiring a specific crypto asset grows, the buying pressure naturally raises its price. This movement is not imposed from the outside but emerges from the internal dynamics between buyers and sellers.

Another crucial indicator in blockchain is the hash rate, which measures the computational power used in the creation of new blocks. This metric varies depending on how many miners are actively participating and the level of complexity of the mining process. Both factors are internally linked: more nodes in the network generate greater computational power, which directly affects the algorithmic difficulty.

Synthesis

Endogenous variables are key pieces for deciphering how both economies and digital markets evolve. They are magnitudes whose trajectory depends on the forces operating within the same system. In traditional finance, we find transaction price and volume. In the crypto universe, relevant examples include the price of coins and the hash rate. Understanding this interconnection allows for anticipating market movements and making more informed decisions.