A cryptocurrency price index is a website or platform that lists the price and capitalization info of various cryptocurrencies.
Popular examples are CoinMarketCap and CryptoCompare. These sites are mainly used for the instant price information they provide on multiple cryptocurrencies but are also a good source of information for benchmarking, monitoring and comparing the growth of the various cryptocurrency assets.
Depending on the listing criteria of individual price indexes, they might provide details on all coins and tokens available on the market or just certain ones which comply with the criteria, such as being available on public exchanges with a sufficient level of trading volume.
Most reputable crypto price indexes will, however, list the majority of coins available on the market and are, therefore, a good way of keeping your finger on the pulse of the entire cryptocurrency market at any given time, without having to manually compile data from hundreds of individual cryptocurrency exchanges.
A cryptocurrency price index focuses on price and trading-related information.
Commonly, you will find the current market price of the respective cryptocurrencies, the market cap — i.e., the current price multiplied by the circulating supply — and the 24H Volume, which is the total trading volume of the specific coin across the various markets in the last 24 hours.
You can generally also click on individual coins to find more detailed information. This could include the current circulating and maximum supplies of the cryptocurrency, a graph that tracks the price performance over time and a list of all the markets or exchanges in which the coin can be traded.
Although this is some of the common information you can expect to find, every platform is different and will provide different information, depending on their user base. If a specific index targets day traders, for example, it might display the highest and lowest price a coin has achieved over the last 24 hours, while another platform that is more attuned to the needs of long-term investors might provide information on specific features of the coin, such as whether it is a proof-of-work (PoW) or proof-of-stake (PoS) coin, whether it is focussed on remittance or tokenization of assets, etc.
The most common data sources for cryptocurrency price indexes are crypto exchanges.
Cryptocurrency exchanges are places where the price of a coin gets established, depending on the buy and sell price traders are willing to accept at any one point in that specific market. Exchange prices are therefore the most accurate representation of a coin’s achievable market value and the best place to glean data from.
Prices might vary slightly from exchange to exchange, depending on the specific market, so crypto price indexes will generally collect data from multiple exchanges to get the most accurate price.
The exchanges make trading data available through open APIs (Application Programming Interface) that makes it easy for indexes to collect the necessary data.
An API is simply a mechanism that enables different software to communicate and exchange data or messages in a standard format. It’s like a messenger running back and forth between applications, databases and devices to create a connection and deliver data.
Cryptocurrency indexes provide a good representation of the overall market condition and position.
However, you will often see the same cryptocurrency listed at a different price on different indexes. The reason for this is because individual index platforms will gather information from a wide variety of different exchanges.
The various 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 information — every two, five or 10 seconds, for example — will all influence the price calculation on the actual cryptocurrency index.
