Lets say we have a fungible asset (stocks, gold, currency, crypto, etc.) that is freely traded on a market. The way this works is that people can submit buy and sell (bid and ask) offers. If a sell offer is below a buy offer, the parties sell to each other. So there's always a gap between the 2 sets like this:
And so it makes sense that the price would be somewhere in this gap. But where exactly?
If we take the middle between the lowest sell offer and the highest buy offer, we essentially give the party behind these offers direct control over the price, like the offer circled in red.
I was thinking since prices are usually sell prices, we take the average of the lowest sell prices that represent a total of N instances of our asset. But now the the price is outside of the set gap and also somewhat useless to sellers.
So how are asset prices with a system like this usually determined?