How To Read Cryptocurrency Price Indexes
We tell what a cryptocurrency price index is, how it differs from the traditional index of the stock market, what information can be learned from it and where the data for it come from. A cryptocurrency price index is a website or platform that provides data on prices and capitalization of various cryptocurrencies.
Popular examples: CoinMarketCap, WorldCoinIndex and CryptoCompare. Most people come here for information about current prices of various cryptocurrencies, but there is also plenty of information for comparison and monitoring of various cryptocurrency assets. However, mostly authoritative cryptocurrency indexes track most of the existing coins, so with their help, it is convenient to monitor the state of the market – no need to manually compile the data of hundreds of individual exchangers.
How does a cryptocurrency index differ from a traditional stock market index?
The principle is the same: both provide an opportunity to assess the financial condition of the industry. It is clear that the traditional stock market indexes show information on the prices of stocks of companies, and cryptocurrency – on the prices of cryptocurrency assets. There is another difference: cryptocurrency indexes usually include most of the available tokens, and traditional ones are limited to, say, a certain sector of the economy or companies of a certain size. Thus, a cryptocurrency index is, first of all, a tool that helps an investor to assess the state of the entire market.
What information can be found in the cryptocurrency index?
As a rule, the current market price of the respective currencies is available, the market capitalization, that is, the current price multiplied by the number of tokens in circulation, and the daily trading volume of a particular coin. You can also click on the name of the coin to go to more detailed information. This may be the number of tokens in circulation and the maximum possible supply of tokens for a given cryptocurrency, a schedule of price changes over time, and a list of all exchanges where this coin can be bought or sold.
All provide such information, but each platform has its own characteristics – depending on the target audience. For example, if a particular index is aimed at day traders, it can also display the highest and lowest price of a coin in the last 24 hours. If the platform is more focused on the needs of long-term investors, the mechanism of the token may be described in more detail, for example, is the proof of work performance (PoW) or proof of the existence of a rate (PoS) used, and also what is it intended for: transfer of funds or tokenization assets.
Where do the data come from?
The most common data sources are cryptocurrency exchanges. Most trading operations are performed on exchanges. Here, depending on how much traders agree, the purchase and sale price is set, therefore stock prices are the most accurate measure of the market value of a coin and the best place to collect data.
Prices may vary slightly from exchanger to exchanger and depend on the specific market, so cryptocurrency indexes usually collect data from several exchanges. In order to understand from which exchanges the index takes the data, you can go to the “Markets” section, after selecting a particular coin. Here will be listed the exchanges on which the coin is traded, and from which the index takes information. A widespread coin like Bitcoin (Bitcoin) is usually traded at several hundred sites, and some IOTA (IOTA / USD) – while being relatively popular – at only 30.