If you woke up yesterday and checked crypto prices at coinmarketcap you might have spluttered your coffee all over your keyboard.
Bitcoin, Ethereum and other cryptos fell across the board, with drops ranging from five to twenty per cent.
But why did this happen?
Well, in reality, it didn’t. Not initially anyway.
The huge drop in value was an illusion. Coinmarketcap quietly removed all korean exchanges from it’s official valuation of the markets. This lead to a perceived total market cap loss of $50b (the money hadn’t actually gone anywhere).
Allegedly this was done due to the region’s prices diverging from global averages, with prices often 30% higher. As the organization tweeted:
A few questions.
Firstly, why are Korean prices so divergent?
As CMC reference, it’s largely due to limited arbitrage. The heavily regulated atmosphere in Korea prevents foreign cash from moving into and out of Korean exchanges. This allows prices in the region to vary from global averages. In other areas, users can take advantage of higher prices to take a profit, creating sell pressure that pushes the price down (arbitrage).
Secondly, we need to ask how one website can have such an effect on the crypto economy.
In the crypto space of revolutionary technology, decentralization is revered as a core feature. With Coinmarketcap’s popularity has come centralisation, with many taking the average prices from the site as ‘official’.
This can not be healthy, and yesterday was a prime example of what can happen.
What can we do?
We can diversify our information sources.
https://coinlib.io/ offer an almost identical service to coinmarketcap
http://www.coinmarkets.co.uk/ offer a similar service.
Over-reliance on one web site is dangerous, and spreading across multiple platforms may help avoid future mishaps.
2) Inform ourselves
Yesterdays dip quickly escalated into a full-fledged correction. Many panicked, selling into the dip in an attempt to minimise losses, bringing the whole market down.
With better information we can avoid future events like this. Use as many sources as possible, from csn and reddit to twitter.
Remember, never make trades unless you fully understand what is going on in the space.