Can We Still Trust CoinMarketCap?

CoinMarketCap.com is ubiquitous among the crypto community. The portal offers an easily understandable view of the entire market, all two thousand and something projects, gathering data from a number of sources and aggregating coin prices. This is on top of giving additional detail on individual projects and exchanges. On the surface, it seems like the ideal tool for measuring cryptocurrency values, and in many ways it is, but there is a glaring error with CoinMarketCap – its data. CoinMarketCap calculates a coin’s market capitalization by multiplying its average price by its circulating supply, and there are issues with the legitimacy of both variables.

Exchange Manipulation

For its exchange data, CoinMarketCap relies on what the exchanges tell them. Yet data from exchanges can be and often is manipulated, presenting an issue with the reliability of these data sets. Some exchanges engage in wash trading to artificially inflate their volume, but of more concern here is the fact that an individual can directly influence the market cap of a coin by market-buying a few satoshis for a hundred dollars each on a big exchange. CoinMarketCap reports these changes and voila, the coin has suddenly shot up the rankings.

Forking Issues

The situation is even more skewed when you factor in forks, as CoinMarketCap calculates its circulating supply from all the coins that could have derived from the fork, including millions that might not be, and may ever be, claimed by holders of the original coin. According to data from blockchair.com, only 4.2 million of the 17 million Bitcoin Cash SV coins that could have been collected by Bitcoin Cash holders have been, yet the market cap is calculated off the 17 million circulating supply.
Some XRP investors are known to have an issue with CoinMarketCap, as the website does not take into account the 55 billion XRP tokens Ripple have locked away in an escrow account. Seeing as they are not part of the circulating supply, say CoinMarketCap, then they cannot be included in the market capitalization. These groups argue that, like with forked coins, the entire supply should be included, not just those actively in circulation. Doing so would give the market cap a 45% boost, firmly solidifying their second position in the rankings.

Change With the Times

CoinMarketCap has been around since 2013, and it seems they are relying on the same system of market cap calculation as they did when they first set out. With lockups, airdrops, forks, and other mechanisms becoming more frequent, they may have to consider other avenues of calculation if they wish to remain cryptocurrency’s go-to market snapshot site.

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