What is a cryptocurrency price index?
It’s a website or platform that lists the price and capitalization info of various cryptocurrencies.
Popular examples are CoinMarketCap, WorldCoinIndex 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.
How is it different from a traditional stock market index?
It is essentially the same principal.
Both indicate the financial health of an industry in which an investor has invested.
The biggest difference is, of course, the fact that traditional stock market indexes list the price info for shares in companies while crypto indexes list price info for cryptocurrency assets of the various blockchain-based networks.
Another difference is, where cryptocurrency price indexes tend to list the majority of crypto tokens available on the open market, traditional stock market indexes will only list a limited number of stocks, with some common denominator between them — usually type of sector or size of the company. These indexes are often seen as a snapshot to help investors gauge the health of the overall market.
The Standard & Poor’s 500 Index (S&P 500) in the United States lists the 500 largest U.S. companies by market value, while the Financial Times Stock Exchange 100 (FTSE 100) is composed of 100 of the largest companies listed on the London Stock Exchange (by market capitalization).
On the other hand, the FTSE techMARK 100 represents only the top 100 innovative technology companies from the London Stock Exchange while the S&P Global 1200 Information Technology Index lists only companies in the IT sector.
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