Don’t rely on crypto marketc**p sites
1st August 2022 |
In the peaks of the 2017 bull market, it wouldn’t be uncommon to check prices on CoinMarketCap or CoinGecko at least 10 or 12 times… an hour.
The common joke around crypto circles was that you’d spend more time on CoinMarketCap than with your girlfriend/boyfriend/wife/husband/etc.
Truth be told… that was a pretty accurate joke.
That’s because one of the most addictive things in crypto is obsession with price.
It does make perfect sense though.
Let’s say you buy a crypto token that has a value of £1.
Within the week, its value has risen to £2 – a 100% gain in a week. The stuff dreams are made of.
Then you start to think, if it can do 100% in a week, imagine what it can do next week.
Then maybe it goes from £2 to £4. Another 100% leap in a week. But you’re now sitting on a 300% gain! Wow, making money in crypto is easy isn’t it!
You can’t stop, you have to keep an eye on it as it goes higher and higher. Your crypto is mooning and it’s the most amazing feeling in the world.
You start to dream. Wow, maybe I can afford that car I always wanted. Maybe I’ll take first-class flights to Disneyland… and get the fast-track passes when I get there!
Then you dream bigger. Maybe I can buy that house I dreamed of. Set myself up for life. All money problems swiftly gone and dusted.
Of course, you’re only about 300% or 400% up on your initial investment at this point. Maybe £1,000 has become £4,000. But you’ve got to dream a little, right?
Those dreams don’t disappear. But you need that crypto to edge higher in price. Just a little bit more. Just a little bit more. Just a little bit more. Only then will you cash out, pay your taxes and enjoy the spoils.
Except that… this is the point in time at which the price starts moving lower. And lower. And lower.
But it’s OK, you think: it’ll bounce back. But it doesn’t. Then the fear creeps in. What if it heads lower than my first buy? Maybe just paying off a bit of the mortgage is smarter than a whole house…
Hmm. What to do, what to do? Wait a bit and see. But while you’re waiting, you have to check the prices. You must be able to see whether you’re car shopping or just shoe shopping.
That means you have to find somewhere to check those prices, every second of every minute of every hour of every day, every week.
Thankfully that crypto market is open 24 hours a day, 365 days of the year and even during those pesky leap years.
That means you can check the prices of your crypto assets, anytime, anywhere, as much as you want. And the two places where almost all of the crypto market turns to check on prices is CoinMarketCap (CMC) or CoinGecko (CG). Or if it’s a portfolio tracker application you use, there’s a very good chance they’re using CMC or CG’s APIs to plug into their app.
You can do this: when you wake up; when you’re having breakfast; when you’re on the toilet; when you’re supposed to be keeping an eye on the kids; when you’re waiting in traffic; when you’re sat on the train; when you’re eating dinner; when you’re in the middle of a “conversation” with your spouse; when you go to bed; when you wake up in the middle of the night because you’re thinking about your crypto prices…
This might seem like it’ll never happen to you. But it might also be exactly what you do. Or if you’re lucky, you might be heading down this path and read this in just enough time to stop yourself from getting addicted and obsessed with price.
What is price?
It should be said, the prices of crypto assets are the thing that gets people addicted the most. There is real potential in crypto markets to get rich quick. The potential is rare, but it does exist. That potential is what brings the speculation and brings the excitement, but also can bring obsession and addiction.
The price, however, is really a determination of what a free market decides. The price is also not necessarily what you think it may be. And therein lies the problem with price obsession and the price data-tracking sites like CMC and CG.
First off, to many people price is the value of a crypto asset in their domestic currency.
So here in the UK most of the time, the price is in sterling (GBP). But with the crypto market, most of the time price is default relayed in US dollars (USD).
There’s a reason for that…
Most of the trading pairs that determine the “price” of a crypto are denominated in US dollars. So when you’re logging on to CMC, for example, and you go to look at the “price” of bitcoin, you are simply looking at data aggregation from exchanges all over the world.
You are not looking at the true price of bitcoin.
You are looking at global, weighted averages of prices from hundreds, thousands of different trading pairs. Some weighted higher than others based on the reliability and “trust” of an exchange. Others are not even counted because they deviate too far away from the current average weighted price.
For example, bitcoin might be priced at $23,000 on CMC. But then when you go to your favoured exchange, it’s actually $22,400. But that was not the price you saw. Something must be wrong?
No. The price sites are an aggregation of data. They are not the trading price of a crypto.
Furthermore, that’s based usually on US dollars. The data sites also track crypto prices based on exchanges in other currencies – perhaps the Japanese yen or Korean won. In order to figure out the bitcoin price from a bitcoin/won exchange pair, there’s an additional conversion to US dollars based on the US dollar/won exchange rate.
So not only is the price not reflective of the actual trade on that exchange, but it’s then at the mercy of traditional financial markets’ currency rates too.
Also, while you find that bigger crypto with hundreds, thousands of trading pairs get close to the true price on exchanges, it should also be noted the data on CMC and CG doesn’t track all exchanges everywhere.
With a smaller crypto, you might find the price only tracks one exchange, maybe two. But perhaps the crypto is listed on four or five. The problem is that the big data sites like CMC and CG just don’t have data feed from those other three exchanges. Hence the price you might see on CMC or CG isn’t as accurate as you might think.
But the price is taken as gospel on these sites simply because people don’t understand how they operate.
Furthermore, websites like CMC and CG often struggle to accurately track the data that comes from truly decentralised exchanges. A lot of the time they simply can’t track the data from a decentralised exchange, meaning the “price” you see on the CMC or CG site may be wildly off from the true trading price.
The key point is that you need to somewhat take what you see on CMC and CG with a pinch of salt.
You need to keep three things in mind when using these sites.
- Their prices are not prices: they’re the aggregation of a lot of price-related data.
- They do not aggregate all data from all exchanges and all cryptos everywhere. Hence their prices are not the prices you end up trading for if you decide to make some trades.
- Obsessing over the data on these sites only serves to lessen your experience in crypto and often derails you from the strategies and plans you might originally have put in place.
For me these sites are useful, but dangerous. If they’re not understood and approached properly with the right mindset, they can become detrimental not just to your crypto experience, but to your life.
They are not the be-all-and-end all of the success or failure of a crypto network or crypto asset. They are data, black and white, that is all. To really understand the value of these crypto assets, you’re better off not even bothering with CMC or CG, other than to perhaps once or twice a week check in to see how your portfolio is going.
If you’re an hourly user, maybe even more than that, I would strongly suggest tapering your addiction to these price data aggregators and spend more time elsewhere.
Crypto to Know
Below is our “Crypto to Know” list where you’ll find several cryptos that we think you should be taking the time to learn and understand.
They each form an important part of the burgeoning crypto ecosystem.
Several of these cryptos are doing very different things to others.
What’s key is to learn that every crypto has its own use cases, its own guiding principles, and its own particular potential.
Each crypto is to be judged and assessed on its own merits.
Our aim here is to help you understand these cryptos and the wider crypto world.
These aren’t specific recommendations but a guide to help you learn and build your confidence in operating in this space.
We will add more names to this list over time. However, if you’re new to the world of crypto, these are the names where we think you should start your education and learning.
We’ve also added links to each one.
The links are to what we believe, in each case, is the best resource for learning about that crypto.
“Crypto to Know” watchlist
- Bitcoin – it/wiki/Main_Page
- Ethereum – ethereum.org/en/what-is-ethereum
- IOTA – docs.iota.org
- Tezos – https://tezos.com/learn/getting-started/
- Filecoin – docs.filecoin.io
- Cosmos – v1.cosmos.network/intro
- Binance – binance.com/en/about & research.binance.com/en/projects/bnb
- FTX – ftx.com & help.ftx.com/hc/en-us
- Solana – https://docs.solana.com/introduction
- Secret Network – https://scrt.network/about/about-secret-network
Sam Volkering
Editor, Sam Volkering’s Crypto Network
