What is the price of BitCoin?
If you watch CNBC, you might think that Coinbase is an official source. If, however, you are looking at the CME BitCoin futures website, you might believe that their arbitrary “index” using a weighting schema of 4 exchanges is THE price. On the other hand, if you look at the Cboe website, you see the single auction price on the Gemini “exchange” as the “settlement” price. Other websites such as Cryptocompare and OnChainFX might be more diverse, but include prices from exchanges that US residents can’t trade on, self-reported trades, or both.
The bottom line is that, depending on where one looks today, the displayed price of BitCoin (as well as Ethereum & other crypto-assets) vary significantly, but none are authoritative. All of these “sources” have major flaws, and deviate from the actual market for investors in particular geographies, and most could be manipulated if there were an incentive to do so. We are pleased to announce today, that there is a solution: the CoinRoutes RealPrice (trademark & patent pending).
CoinRoutes has created the RealPrice to represent the average of the net cost of buying and selling 5 BitCoin across all exchanges eligible to a specific geography (and an equivalent amount of other crypto-assets based on the filter levels in our system). For BitCoin in US Dollars, this means net cost (inclusive of fees) of buying 5 BitCoin across the 6 exchanges that now allow US Dollar deposits and withdrawals from US residents. (At the time of this note, that includes pricing from GDAX, Gemini, BitStamp, Kraken, ItBit, & BitFlyer USA). The prices are calculated every few seconds and will be disseminated to CoinRoutes clients via UI and API and will be made available to select media outlets and partners.
The CoinRoutes RealPrice is based upon both of our patent pending innovations: the filtered, consolidated, best bid and offer, and our distributed cryptocurrency smart order router (SOR). It differs markedly from other prices used by derivatives, institutional and retail platforms or reported by the media in several ways:
- Consistent, not arbitrary
- Actionable, not theoretical
- Dependable, not easily subject to manipulation
Each of these attributes will be explored in turn.
Consistent, not Arbitrary: The US Dollar based CoinRoutes RealPrice uses prices on all six exchanges that allow trading, USD deposits and withdrawals from residents of the U.S.A. The design of the RealPrice is such that, if another exchange qualifies under U.S. rules and offers trading and dollar deposits and withdrawals, it will be added immediately. This is very different than other pricing methods in use, which can either exclude exchanges or include exchanges which are not accessible to US residents.
Exclusionary methods are very problematic. Whether it is CNBC using only Coinbase (GDAX) pricing or the CME which excludes Gemini and Bitflyer, recent statistics illustrate the issue. First, continuing the trend for the past 4 months, over the past 4 weeks, the best bid has exceeded the best offer by more than 25 basis points over 98% of the time. This indicates how different markets have prices that are not in line with each other. Second, over the same period, GDAX was at the best offer price less than 11% of the time, indicating that reliance upon that exchange for market pricing is less than ideal. Last, considering that Gemini was excluded from the CME index means that over 10% of the best bids and over 20% of the best offers would have been excluded.
As problematic as excluding legitimate venues can be, it is worse to include venues which are not accessible to US citizens. The following two graphics compare the Bitcoin-USD CBBO over the first two weeks of January using only the 6 US eligible exchanges to a chart that includes all the exchanges that post bids and offers for the pair:
The wide disparity between the two views pretty much speaks for itself, with very different prices, much wider negative spreads between the best bid and offer and very different markets represented at the best bid and offer. It is quite apparent that including exchanges whose prices are not accessible by US based investors for a dollar based product is a bad idea for a reference price.
Actionable not Theoretical: The CoinRoutes RealPrice is based on the best price a trader could buy or sell 5 BitCoin or an equivalent amount of Ethereum, BitCoin Cash or LiteCoin. Other prices could be based on reported trades of any size, quotes of much smaller sizes or, in the case of “indexes” could overweight quotes that are of much larger size. Simply put, with the RealPrice, the price corresponds to tradeable price of the individual crypto-asset. Other prices do not have this characteristic.
- CME – Whether it is the BitCoin Reference Rate, which is a TWAP of transactions over an hour, or the BitCoin Real Time Index (BTRI), which aggregates the order book and uses volume weighting to calculate a price, the prices are theoretical and can not be traded against. A quick comparison of the CME BRTI and the CoinRoutes RealPrice show a high correlation, but sizable differences and a significant lag where the BRTI is behind the RealPrice whenever the price moves significantly.
- Cboe – While the choice of the Gemini auction for a settlement price at expiration makes sense, due to the fact that an auction allows investors to pair off expiring positions with underlying trades, it is inappropriate for daily trading. The settlement price is only once per day and can be significantly divergent to the rest of the market.
- CoinMarket Cap and other sites – The index values used by popular websites are typically based on reported trades, and not based on where one could trade. Since many exchanges that report prices can do so outside of the bids and offers that are accessible, this makes them impossible to trade against.
Hard to Manipulate: The CoinRoutes RealPrice can only be moved by significant purchases or sales across six different exchanges, whereas other pricing sources that are based on calculated indexes or opaque methods of trade aggregation can be moved by techniques such as layering the books of less liquid exchanges or by creating wash sales.
CoinRoutes now has the RealPrice live on our Information Portal for BitCoin, Ethereum, BitCoin Cash and LiteCoin in US dollars:
For information on how to gain access to the CoinRoutes RealPrice, please click here to sign up for CoinRoutes information
Dave & Ian Weisberger