Coinmarketcap (coinmarketcap.com) is the best known and most important of the index providers. It aggregates information from many markets to get the instantaneous price of any coin or token. In January 2018 it sparked a run on Ripple when it removed South Korean exchanges from its calculations because of market anomalies.
Disciples of the CrytoIndex Guru are less interested in the price of single coins than they are in asset allocation. Coinmarketcap’s Global Charts page shows the total size of the cryptocurrency asset class and the market dominance of Bitcoin.
Coinmarketcap gives us the total cap.
The first asset allocation we are interested in is between non-crypto (stocks and shares) and crypto. This can be measured by considering the total value of all cryptocurrencies.
As index investors we follow total market capitalization closely,
- If money flows in, demand increases and prices will rise – higher cap
- If money flows out, demand decreases and prices will fall – lower cap
This chart shows the increasing size of the cryptocurrency market during 2017.
Bitcoin versus Alts
The second asset allocation we are interest in is between Bitcoin and all other cryptocurrencies (Alts). There are three possible investment positions
You will follow an index that contains cryptocurrencies according to their market cap.
Your portfolio will contain more than the percentage market cap of Bitcoin (33% at the time of writing). Some investors believe that in the long term Bitcoin will replace gold and other cryptocurrencies will fall away.
Your portfolio will contain less than the percentage market cap of Bitcoin. Most commercially provided indexes cap the amount of any one coin, often to 10 or 20%. It is often thought that “elephants don’t run” and the gains to had in smaller cap assets are greater over time.
This chart shows that during 2017 the total market value of alts exceed that of Bitcoin for the first time.