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CRYPTOCURRENCY PRICE INDEXES EXPLAINED

WHAT ARE CRYPTOCURRENCY PRICE INDEXS?

They are websites or platforms that lists the price and capitalisation data of different cryptocurrencies. well-liked examples are CoinMarketCap, WorldCoinIndex and CryptoCompare. These sites are principally used for the instant price data they provide on multiple cryptocurrencies; however are an honest source of data for benchmarking, watching and comparing the growth of the assorted cryptocurrency assets. Depending on the listing criteria of individual price indexes, they could give details on all coins and tokens accessible on the market or simply certain ones that comply with the criteria, like being accessible on public exchanges with a sufficient level of trading volume. Most well-liked crypto price indexes will, however, list the bulk of coins available on the market and are, therefore, an honest way of keeping your finger on the pulse of the complete cryptocurrency market at any given time, while not having to compile information from many individual cryptocurrency exchanges manually.

HOW IS IT DIFFERENT FROM A TRADITIONAL STOCK MARKET INDEX?

It is basically the same principal. Each indicates the money health of a business in which an investor has invested. The foremost important distinction is, of course, the actual fact that traditional stock market indexes list the price data for shares in companies whereas crypto indexes list price data for cryptocurrency assets of the assorted blockchain-based networks. Another distinction is, wherever cryptocurrency price indexes tend to record the bulk of crypto tokens accessible on the open market, traditional stock market indexes can solely list a restricted number of stocks, with some common divisor between them -- typically kind of sector or size of a company. These indexes are usually seen as a snapshot to assist investors in gauging the health of the market. Standard & Poor's 500 Index (S&P 500) in the united states lists the 500 largest U.S. companies by market value, whereas the Financial Times-Stock Exchange 100 (FTSE 100) consists of 100 of the biggest companies listed on the London stock exchange (by market capitalisation). On the other hand, the FTSE techMARK 100 represents the top 100 innovative technology companies solely from the London stock exchange whereas the S&P global 1200 Information Technology Index lists companies exclusively in the IT sector.

WHAT INFORMATION CAN YOU FIND ON A CRYPTOCURRENCY PRICE INDEX?

The focus is on price and trading-related data. Commonly, you'll find the present market price of the many cryptocurrencies, the market cap — i.e., the current price multiplied by the available supply — and also the 24H Volume, that is the total trading volume of the specific coin across the assorted markets in the last 24 hours. You'll typically also click on individual coins to search out more elaborated data. This might include the currently available supply and maximum supplies of the cryptocurrency, a graph that tracks the price performance over time and a listing of all the markets or exchanges in which the coin may be traded. Although this is a number of the shared data you'll be able to expect to find, each platform is different and will offer different data, depending on their user base. If a particular index targets day traders, for example, it would show the highest and lowest price a coin has achieved over the last 24 hours, whereas another platform that's more attuned to the needs of long-term investors may provide data on specific features of the coin, like whether it's a proof-of-work (PoW) or proof-of-stake (PoS) coin, whether it's focussed on remittance or tokenization of assets, etc.

WHERE DO THEY GET THEIR DATA?

The most common data sources are cryptocurrency exchanges. Cryptocurrency exchanges are ground zero for the majority of trading activity. It's where the worth of a coin gets established, counting on the buy and sell price traders are willing to accept at any one point therein specific market simply. Exchange prices are thus the foremost accurate representation of a coin’s possible market price and the best place to collect information from. Rates might vary slightly from exchange to exchange, depending on the particular market. Thus crypto price indexes can usually collect information from multiple exchanges to get the foremost correct price. You'll be able to see which exchanges an index used to collect information from by clicking on the markets tab of a particular coin. This may display a listing of exchanges the coin is traded on and from where the index has gathered the data. A usually traded coin, like Bitcoin, can have many hundred markets, whereas IOTA — though still a popular coin — can have as very little as 30 markets. The exchanges make trading data accessible through open APIs (Application Programming Interface) that makes it simple for indexes to collect the required data. An API is simply a mechanism that permits different software to communicate and exchange information or messages in a standard format. It’s sort of a messenger running back and forth between applications, databases and devices to make a connection and deliver data.

WHAT KIND OF DATA DO THE INDEXES COLLECT?

The kind of data will depend on what type of information the index wants to make available to users. Apart from visible information such as the trade price and trade amount of specific transactions, common data elements include Coin IDs, Trade IDs, Timestamps and Exchange rates.

HOW DO THEY CALCULATE THE PRICE OF A SPECIFIC CRYPTOCURRENCY?

Cryptocurrency Indexes will typically use a 24-hour volume weighted average (VWA) to calculate prices. This method gives you the average price at which a cryptocurrency is traded over the trading period. The defined period there is a continuous — or rolling — 24-hour timeframe, which means the displayed prices are updated continuously.

ARE THE PRICES ON CRYPTOCURRENCY INDEXES ACCURATE?

It provides a decent illustration of the market condition and position. However, you'll usually see the same cryptocurrency listed at a different price on different indexes. The reason for this is because individual index platforms can gather data from a large variety of different exchanges. The assorted exchanges trade in different markets against different fiat currencies (USD, EUR, GBP, JPY, etc.). Depending on the market, the trading volume, how liquid a coin is, what transaction fees the exchange charges and how often the API requests and sends data — each 2, 5 or 10 seconds, for example — can all influence the price calculation on the actual cryptocurrency index. To place an exact price on a coin at any one time across all markets would therefore not be a simple task, nor would it be necessary, as long as you recognise that the price on the exchange you’re trading on is correct for that specific market.