Cryptocurrencies are digital, so theoretically the creators can make the coins whatever price they want! WRONG. The market price is driven by many factors but is mostly a scorecard for the attempted measurement of fundamentals. One thing to keep in mind is the market is always wrong but constantly seeking the truth.
So, How are the Prices Calculated?
Lets use a stock as an example. To keep things simple, the price the stock is determined by supply and demand. But supply and demand have their own determinants. In the case of a stock, how well a company is doing and stands to do in the future increases the value of the company, and, stock being an ownership stake in the company, this increases the value of the stock.
As you know, the price of any cryptocurrency fluctuates constantly. The last price a trade was made at for that cryptocurrency is the price that it will be for the next person. There is an order book of bids and asks that people filed for certain amounts and certain prices. Whenever someone comes in and buys (or is selling) at the market price, which is usually either the highest bid or the lowest ask, this is the last trade and the price it was performed at, is the price of the cryptocurrency.
Price goes up and down thanks to supply and demand. If news were to blast over the place that this particular crypto has a great thing coming, a swarm of willing investors come and they buy out the SELL (ask) book starting from the lowest possible price and picking it up from there. If they buy out all the price positions up to a certain point in a quick amount of time, the price rises quickly, because the remaining sell orders are at a higher price. Some of those might even get cancelled and restated at even higher prices as a result of the obvious increased attention towards this crypto.
Regarding Different Prices on Different Exchanges…
You may notice that the price of a certain coin may differ on the various exchanges. This too happens because of supply and demand. Each exchange has different users and the price is going to be set by the buy and sell orders those users place. The amount of fees and the funding and withdrawal methods will play a role in what type of people choose that exchange. Usually, the exchanges with the most liquidity (the availability of liquid assets to a market or company) are the ones with the best value.
Because of this difference between exchanges, humans and/or bots will start buying/selling on other exchanges to pocket the difference in price. They act as a natural mechanism that is going to bring equilibrium to the prices among all the exchanges.
People rushing to buy or sell are being affected by news, expectations, deliberate market manipulations or technical analysis (studying behavioral patterns in the price charts and predicting possible movements in the future) also play a role in the price of a cryptocurrency.
The bottom line is, if more people want to buy than sell, the price goes up. If more people want to sell than buy, the price goes down.