What Are Cryptocurrency Price Indices And What Are They Used For?
A cryptocurrency price index is an online platform that displays changes in key indicators of the crypto market in real time. The most well-known example is the CoinMarketCap online platform. It contains graphs and charts showing the dynamics of changes in prices and the capitalization of the cryptocurrency market since mid-2013. Other popular services are WorldCoinIndex and the CryptoCompare index.
Such sites are created to quickly assess the market and its financial instruments, analyze its movement, and forecast further dynamics. Information on price changes of different cryptocurrencies can be obtained from crypto exchanges, but this is inconvenient because their listings are limited. A cryptocurrency price index illustrates an overall picture, including not only well-known cryptocurrencies but also less popular ones. Some services display tokens that are rarely traded on exchanges.
Cryptocurrency Price Index vs. Stock Exchange Index
Cryptocurrency and stock market indices work on the same principles: they show changes in data for a specific user-selected period of time. Obviously, they give information on completely different markets. Crypto indices display data exclusively on digital assets, such as cryptocurrency, blockchain-based tokens, stablecoins, etc.
Stock exchange indices show changes in the price of stocks of companies united by some characteristics. This is a comprehensive indicator that illustrates the dynamics of the market in a particular sector of the economy and region. Let's look at some of the most famous indices:
- The S&P 500 is a marker for the US economy. It displays capitalization changes of the 500 largest corporations in the country.
- Dow Jones is the oldest industrial index in the US market. It shows changes in the prices of shares of the 30 largest US companies.
- FTSE 100 displays the capitalization of the hundred of leading companies on the London Stock Exchange.
- The NASDAQ Composite contains data on the price dynamics of stocks and other financial tools traded on the NASDAQ stock exchange in New York.
With the help of a stock exchange index, an investor understands how successful companies in different sectors of the economy are and determine market trends. Looking at indices, traders should not analyze dozens of companies as a single indicator allows assessing the situation much more quickly.
The cryptocurrency market is a young and specific niche, it's not as segmented as the stock market. Therefore, the number of indices on the cryptocurrency market is much smaller, while the stock market has hundreds of them. Coinmarketcap, WorldCoinIndex and the CryptoCompare index show changes in prices and capitalization of thousands of crypto assets. They are easier to use to assess the market globally or to track the dynamics of its trading instruments.
However, cryptocurrencies can also be divided into groups, and there are already price indices for specific types of crypto assets. Naturally, their number will increase over time. Today, they are primarily interesting for stock market investors. In the next article, we will talk about cryptocurrency price indices and their investment potential in more detail.