DeutschHow Does an Index Work?
Before we go into detail about what the Bitcoin Price Index (BPI) is and how it works, we would like to briefly explain the basic functioning of an index. You may already be familiar with various indices from the stock market, such as the SMI as the Swiss stock index. But there are also indices in the commodities sector that work on a very similar principle. All indices have in common that they are based on various individual stocks, with usually between 20 and 100 individual stocks included in the index. The index then reflects the average prices of the underlying assets with a value, usually with its score. For example, with a glance at the SMI index, you can see how the Swiss stock market is developing.
What is the BPI?
BPI is the abbreviation for Bitcoin Price Index. In principle, this works in the same way as stock indices, except that in this case only one individual stock is included in the index, namely the cryptocurrency Bitcoin. The BPI has the task of representing the average price of the digital currency Bitcoin. For this purpose, the prices on various cryptocoin exchanges are used in the index. Since the Bitcoin prices on the various cryptocoin exchanges can differ from each other, the BPI actually reflects an average price.
How Does the BPI Work in Detail?
In detail, there are various cryptocoin exchanges, on which of course the Bitcoin price is also listed, which together contribute to the Bitcoin Price Index. However, the prerequisite is that the price on the corresponding exchanges is updated at least once every half hour. If this does not happen, the Bitcoin prices of this exchange will not be included in the calculation of the average price – at least temporarily.
How is the Value of the Bitcoin Price Index Represented?
Typical for the representation of an index is the chart, which is also used for the Bitcoin Price Index. For example, certain time intervals are displayed on one axis, such as one day. On the other axis, the average price of the Bitcoin is then entered. Thus, you can use the chart to understand how the price of a Bitcoin has developed within the last four weeks, for example. These charts are made available for different periods, which usually range from one day to several years.
