On 6th of January total market cap of cryptocurrencies reached 800 billion USD according to Coinmarketcap. Today (8th of January) we saw the market drop like a stone around 50 billion USD in a matter of seconds.
The reason; a change in price calculation.
Traders on South Korean exchanges are paying a premium of almost 50% for many of the top cryptocurrencies. The first thing that comes to mind is taking advantage of arbitrage but that is next to impossible since these exchanges have very strict rules for foreign users. It is, therefore, a logical move to adjust the average price of cryptocurrencies and exclude this super-high Korean prices.
Let’s look at XRP for example:
XRP/KRW (South Korean Won) pair on Bithumb (South Korean Exchange) accounts for around 35% of all XRP volume. The price of XRP on Bithumb is currently 3.83 USD. Meanwhile the price of XRP on Bitstamp – the established European exchange is 2.50 USD with little over 3% of the total XRP volume. Together all KRW pairs combined represent almost 50% of the whole XRP 24h volume.
As you can see the differences in prices are enormous. Coinmarketcap displays average price which is a weighted average of prices on different exchanges. Due to Korean prices being so much higher than all the other they have decided to exclude them from the calculation. The volume is still included as it should be.
So the average price displayed immediately dropped from around 3.50 USD to 2.60 USD slashing around 20 billion USD from the XRP Market cap. XRP off course wasn’t the only currency experiencing such a problem but due to almost 50% of total volume coming from South Korea, it suffered the biggest impact.
“Coinmarketcap’s decision to exclude Korean prices from the displayed XRP price made the price appear to drop, likely triggering some panic selling. Look closely at the data and don’t be mislead.” David Schwartz – Chief Cryptographer at Ripple wrote on his Twitter account.
Overall we believe that Coinmarketcap made the right move, but they should have announced it earlier to avoid the confusion.