Cryptocurrencies “Crash” After CoinMarketCap Changes Valuation Method
Crypto investors were left baffled yesterday when the CoinMarketCap website, widely considered the world’s standard for cryptocurrency valuations, showed sharp declines across the sector, with Ripple’s XRP down nearly 30%.
CoinMarketCap calculates its figures based on averages across exchanges. The correction occurred not because of any major changes in buying and selling behaviour, but because they had decided to take out data from South Korean exchanges.
In a tweeted statement CoinMarketCap explained that they dropped South Korea,
due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity.”
South Korean investors regularly pay a premium for cryptocurrencies, so prices there are often higher than in the rest of the world. Korean exchanges such as Bithumb often show Bitcoin prices $5,000 higher than in the US. Due to the country’s preeminence in crypto-trading the average world prices are considerably higher if they are included.
XRP Loses $20 Billion
Ripple saw a particularly sharp correction with $20 billion wiped from its market cap. XRP has become extremely popular in the Far East in the last month and the region has driven the recent price rises in the token. After the move Ripple moved back to third place behind Ethereum in the rankings of biggest cryptocurrencies by market cap.
Many investors criticised CoinMarketCap for the unannounced move, arguing that any sudden price correction will trigger sell-orders and interfere with the market. Anger was particularly great as the change was not announced until 12 hours after it had occurred. One investor responded that the move, “surprised many people and the newbies likely sold” adding that “your actions without notice likely caused a loss of money for many”.
However, not everyone was so distressed. Though he warned against “panic selling” based on the move, David Schwartz, Ripple’s chief cryptographer, said that in his opinion the new price as “more accurate and meaningful”.
Whether or not the move was justified it certainly came as a surprise. Another reminder, as if one were needed, that the sector remains in its infancy and investors should brace themselves for further shocks.