How endogenous variables shape markets

The internal engine of economic models

In any economic system, there are forces that shape themselves according to their own internal dynamics. An endogenous variable is precisely that: an element of the economic model whose behavior and values are determined by the interaction with other variables within the same system. Unlike external factors that come from outside, these variables are generated and transformed by the very relationships that exist between them.

Examples you can see every day

Let's take the traditional goods market. When you observe how the price of a product is set, you will see that it is directly connected to the available supply and the existing demand. If more people want to buy and the available quantity does not increase, the price naturally rises. Conversely, when there is a lot of stock and few interested buyers, prices tend to fall. In this scenario, both the price and the quantity sold are endogenous variables because they emerge from the relationship between supply and demand.

Now consider a company that produces and sells. Its level of production, the revenues generated, and the final profits do not fall from the sky: they are direct results of its internal decisions. The installed capacity, the cost of inputs, and the chosen pricing strategy determine these variables. If the company implements new technology to produce more, its unit costs may automatically decrease, its volumes may increase, and its profits may be reconfigured.

The Endogenous Variable in Cryptocurrencies: Price and Its Drivers

In the crypto universe, the price of a digital currency behaves like a complex endogenous variable. Its movement reflects the confluence of multiple internal market forces: the trading volume generated, the constantly evolving sentiment of investors, and the fluctuating market demand. When more capital enters seeking to buy, the upward pressure naturally accumulates, driving the price up.

Another vital endogenous indicator in blockchain is the hash rate, which represents the computational power deployed to mine blocks. This metric is not fixed: it directly responds to how many miners are actively participating in the network and how difficult the mining process has become. When it is profitable to mine, more participants enter; when it is less lucrative, they withdraw. The hash rate reflects this dynamic balance.

Synthesis: feedback variables

Endogenous variables are pieces of a puzzle where each move affects the next. In traditional economics, we see how price, quantity, and costs shape each other. In cryptocurrencies, the price of a coin, the hash rate, and market behavior constantly influence each other. Understanding this internal feedback is crucial to understanding why markets behave the way they do.