CoinMarketCap Alters Pricing Calculation
CoinMarketCap, a heavily used website that provides data about cryptocurrency prices, decided to omit prices of cryptocurrencies from several major South Korean crypto-exchanges. Cryptocurrency prices from Bithumb, Coinone, and Korbit were taken out of the calculations formulas. As a result, investors became apprehensive since this significantly changed the pricing data. This created panic and led to a frantic sell-off.
Soon after CoinMarketCap removed prices from these exchanges in its calculations, cryptocurrency prices went down worldwide. This shows how powerful just one website can be in determining how the crypto-market will behave. Usually, when the price of bitcoin and other major cryptos goes down, they bring down the prices of nearly all other cryptos as well, like a Domino Effect. And, this is exactly what happened this time.
Official Statement via Twitter
CoinMarketCap tweeted, “This morning we excluded some Korean exchanges in price calculations due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity. We are working on better tools to provide users with the averages that are most relevant to them”. It is not clear how the website determined that arbitrage was limited. Although S. Korean crypto prices are usually higher than the world’s average, the website’s decision seems to be quite subjective.
No Prior Notification
What was understandably disturbing to many users was that the website made no prior announcement regarding its plans to drop prices from these crypto-exchanges. One could even make the case that this a form of form of market manipulation. This is because the abrupt decision of a single website partly contributed to a drop in crypto-market cap from $830 billion to $669 billion. That’s a difference of over $160 billion.
Bitcoin Cash, litecoin, and Ripple were affected the most. Their prices fell sharply, soon after these unannounced changes. XRP lost a quarter of its value while Litecoin was down 13% and Bitcoin Cash was down 11%. Not everyone was complaining about CoinMarketCap’s decision.
David Schwartz, Ripple’s lead cryptographer, said “[the] decision to exclude Korean prices from the displayed XRP price made the price appear to drop, likely triggering some panic selling. Look closely at the data and don’t be mislead”. He further added that these new prices were more “accurate” and “meaningful”. He might have a point, but this is just one person’s opinion and it doesn’t take away the fact that the website should have informed everyone before introducing this change.
Illusion of a Market Drop
Perhaps, Greg Dwyer, head from BitMex exchange, put it best. He indicated that all cryptos are priced 30% higher than world averages. So, by removing these outliers from the calculation, it gives the false impression that the crypto-market cap has gone down by 30%. Consequently, a state of confusion and panic is created leading investors to sell. Would this qualify as misinformation or as more meaningful information, as Mr. Schwartz has suggested? You be the judge.