What is cryptocurrency indexes?

04 Dec, 2019 Colin Baseman

There is no point in denying the similarities between the cryptocurrency market and the classic stock market. It is important for the crypto market to implement the best features and use experience of the more time-proven tools to its benefit. For example, research-based on cryptocurrency indexes can help you to increase your chances of getting bigger returns on investment. Let's get acquainted with them in more detail.

Indices of cryptocurrencies and their features

Cryptocurrency indices are a summary of indicators calculated based on the analysis of a group of cryptographic assets. Their purpose is to reflect the general trends in the market. There are different classifications of indices. For example, they can report on the prospects for the development of a particular group of coins, the entire market in the short or long term. In the article "Cryptocurrency indices vs traditional index" you can read in detail about the features of these types of indicators.

Typically, the calculated values are used to achieve 2 important goals:

  • Displaying the direction of development of the cryptocurrency market as a whole
  • Formation of index funds

The following indicators can be used to calculate the index: 

  • The capitalization of the market as a whole or to any crypto asset in particular
  • Number of coins issued
  • The market value of the cryptocurrency
  • Daily trading volume

All indices of cryptographic currencies reflect information about a coin from a certain point of view. For example, if the indicator is designed for investors, then they can explore data on technology, the change in the value of the asset since its appearance, study the issue of coins, etc. for day traders often develop indices that display the minimum and maximum price of the cryptocurrency during the day.

Investors often use summary metrics to properly build a cryptocurrency portfolio and diversify risks. And traders need them for a clear understanding of the markets and finding the best points to enter and exit the coin.

Which date is used for the cryptocurrency indexes

Cryptocurrency exchanges are a key source for obtaining the values on the basis of which aggregate indicators are calculated. They usually received information about demand, supply, trading volume, etc. As a rule, information is obtained via open API (application programming interface). They provide all serious sites to their users. APIs are special algorithms that allow exchanges to exchange information with each other and users. Such information may include: 

  • Exchange rate. Often expressed in one coin relative to another. For example, bitcoin to Ethereum, dogecoin to bitcoin, etc.
  • Timestamp. The indicator is used to plot price changes, determine the market value at a given time, establish the minimum and maximum value of a crypto asset for a certain period.
  • IDs cryptocurrencies. A unique sequence of symbols for each coin. Sometimes they are called stickers.
  • Identifiers of transactions. Unique coin identifiers indicating the volume of closed orders.

 The cryptocurrency indexes are essential for successful trading on the crypto market. It is important to select the most appropriate summary indicators for the goals. The article "indexes overview" will help you to get acquainted with the most popular of them. It is important to understand the nature of such indicators. In this case it will be possible to make them the most informative for perception.