By Gaurav S. Iyer, IFC Published : January 8, 2018
Were you surprised at Ethereum prices this morning? If the answer is yes, you are not alone. The sudden drop in ETH prices (without a corresponding fall in market cap) was perplexing at first glance. But then I dug a little deeper.
It seems that CoinMarketCap.com changed how it calculates crypto prices. From now on, trades recorded on Korean exchanges will not be factored into the average price.
This is a significant move because CoinMarketCap is where a lot of people go to check cryptocurrency prices. It is clear, simple, and as of today, free of Korean price distortion.
Daily Ethereum Chart
If you have no idea what I’m talking about, don’t worry. Below is a quick explainer…
- Cryptocurrencies trade on many different exchanges around the world.
- Web sites like CoinMarketCap.com accumulate prices from those exchanges in order to calculate an average price. (This helps us get a rough approximation of how much the market values Bitcoin, Ethereum, Ripple, or NEM. It is a rule of thumb measurement.)
- Data shows that Korean investors pay a premium for most currencies.
- For example, the third biggest exchange, Bithumb, showed an average ETH price of $1,743.55 yesterday. By contrast, the leading exchange for trading ETH showed an average price of $1,157.82. That’s a 51% premium for trading on Korean exchanges!
- In sophisticated markets, this kind of calculation is unnecessary because institutional investors squeeze out all arbitrage opportunities.
- But crypto markets are young and inefficient. That’s why Korean prices are able to drift away from average Ethereum prices.
- CoinMarketCap.com wants to give people the best idea of global prices, so they omitted the outlier data. (Korean exchanges are the outliers.)
In the case of Ethereum, this shift didn’t cause too much damage. The Ethereum to USD exchange rate is actually 2.03% higher than it was 24 hours ago and the Ethereum to Bitcoin rate is up 11.7%.
Despite this shockwave, ETH prices are still on route to our $1,500 Ethereum price forecast.