ELI5: CoinMarketCap

ELI5: CoinMarketCap

CoinMarketCap, often abbreviated CMC, is the name of a pioneering data provider which became the de-facto market cap and coin price reference for cryptocurrency traders.

Over The Counter

During the early days of cryptocurrencies, prices were mostly set by over the counter trades (such as the infamous Bitcoin pizza transaction).

Back then, there were no central price references.

Bitcoins being traded on Reddit, IRC chat rooms, Bitcointalk and other online meeting places had their U$ price set by informal means.

Because of this lack of a trusted price reference, there could be enormous spread between different markets. E.g. : while someone might have bought Bitcoin for U$ 1 on a IRC chat room, others could be paying 5 times more on Reddit.

Early CMC

In 2013, CoinMarketCap.com then began to track prices across several of these markets, publishing an average price in real time at any time of the day.

Quickly, CMC became the main crypto price reference on the WWW.

On the first version of CoinMarketCap only 14 cryptocurrencies were listed: Bitcoin, Litecoin, PPCoin, Namecoin, Feathercoin, Terracoin, Devcoin, Freicoin, Novacoin, CHNCoin, BBQCoin, Mincoin, BitBar and Ixcoin.

Most of the early coins have since disappeared or lost most their monetary value, with the notable exception of Bitcoin and Litecoin which remain at the helm of crypto valuation.

Market Cap Controversy

Crypto.BI covered an early controversy surrounding CoinMarketCap crypto market caps.

The issue arose when many lesser known cryptocurrencies suddenly displayed multi million (or even billion) dollar market caps when they weren’t traded in enough volumes to justify such valuation.

This happened because the price of one coin was multiplied by the entire circulating supply, even though the traded volume was usually nowhere close to the supply.

Another problem with early market cap calculations involved the triangulation between altcoin to Bitcoin to U$ prices. Many altcoins did not (and still don’t) have USD trading pairs, which means their U$ price is derived from the Bitcoin price. This not only gives users the impression that certain altcoins are being actively traded for U$ when they’re not, but also creates complex price interactions where the dollar amount traded in Bitcoin is counted twice: once for the altcoin and another for Bitcoin itself.

In the past few years, CMC has taken several measures to correct some of these distortions.

Coins with too little or suspiciously high traded volume will display notices warning users that the volume, price or both have been discounted from overall CMC market cap calculations. New coins now also go through a sabbatical period before having their data fully counted in the overall crypto market cap and other statistics.

CoinMarketCap Indices

Just like the traditional stock markets have indices published by several different sources (Dow Jones Index, SP500, VIX and so on), CMC publishes their own composite cryptocurrency indices.

CMC indices are meant to reflect trends in a specific set of cryptos. Right now two main indices get published by CMC and are reconstituted quarterly:

  • Crypto200
  • Crypto200EX

In both indices, data from over 200 exchanges is compiled and published. CoinMarketCap indices can be traded on Nasdaq.

Earn Crypto Interest

CMC also tracks the ROI from lending or staking several cryptocurrencies.

The Interest tracker publishes real time data about several platforms where your crypto can generate passive income.

Lenders can earn crypto interests or if you’re looking to borrow cryptocurrencies then you can also track spreads and interest rates on this section of CMC.

Conclusion

We recommend everyone to follow the CMC blog where all the latest developments are communicated.

While CoinMarketCap began as a simple price and market cap tracking tool, it has now developed into a popular platform for all kinds of crypto analysis and raw data.

Links

CMC Blog

CMC Shop

CoinMarketCap Twitter

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