Cryptocurrency Price Indexes, Explained

4.The most common data sources are cryptocurrency exchanges.

Cryptocurrency exchanges are ground zero for the majority of trading activity.

It is where the price of a coin gets established, depending on the buy and sell price traders are willing to accept at any one point in that specific market.

Exchange prices are therefore the most accurate representation of a coin's achievable market value and the best place to glean data from.

Prices might vary slightly from exchange to exchange, depending on the specific market, so crypto price indexes will generally collect data from multiple exchanges to get the most accurate price.

You can see which exchanges an index used to collect data from by clicking on the markets tab of a specific coin.

This will display a list of exchanges the coin is traded on and from where the index has gathered the information.

A commonly traded coin, like Bitcoin, will have several hundred markets, while IOTA - although still a popular coin - can have as little as 30 markets.

The exchanges make trading data available through open APIs that makes it easy for indexes to collect the necessary data.

An API is simply a mechanism that enables different software to communicate and exchange data or messages in a standard format.