A new benchmark index is trying to cut through market manipulation and inaccurate data to offer a “robust” insight into Bitcoin’s actual price.
The Bitcoin Benchmark Rate (known as BBR for short) is updated on an hourly basis.
It is the brainchild of MV Index Solutions, which develops a range of indices for investors, along with the digital asset data platform CryptoCompare.
Over time, the hope is that the BBR will be used as a reference rate for funds, asset managers and exchanges who aspire to build derivatives and exchange-traded products on Bitcoin.
The raw data powering the index is derived from transaction prices across five top exchanges: Bitstamp, Coinbase, Gemini, itBit, and Kraken, according to a release.
Two interesting things to note from the choice of exchanges. First, although Coinbase is attempting to improve the accuracy of data in decentralized finance by creating price oracles, it has been prone to some particularly nasty outages during sudden moves in BTC prices—bringing its reliability into question.
Second, a notable omission from that list of trading platforms is Binance. Could that be linked to its recent blockbuster acquisition of CoinMarketCap, one of CryptoCompare’s bigger rivals, for a reported $400 million?
And there’s potentially a sticking point: the fact that the price is only going to be updated once every 60 minutes. As we learned on Monday, a lot can happen in an hour, with BTC plunging from $10,100 to $9,400 in the space of five minutes. Some exchanges—potentially those that this index will be using as a reference—wicked down $100-$700 lower.
Fighting dodgy data
SEBA Bank, a crypto-focused Swiss bank that was “closely involved” in developing the BBR, says the index is essential in order for new, innovative products to launch, and to help this burgeoning derivatives market gain credibility among financial institutions and professional investors.
Indeed, as we’ve seen in the past, the lack of trustworthy data has been a major stumbling block for companies attempting to get regulatory approval for a Bitcoin exchange-traded fund (ETF). That’s what Bitwise Asset Management was doing last March, when it told the U.S. Securities and Exchange Commission that 95% of the BTC trading volume reported by CoinMarketCap is “fake and/or non-economic in nature, and that the real market for Bitcoin is significantly smaller, more orderly and more regulated than commonly understood.”
For its part, CMC has been attempting to put this right. In recent weeks, it began launching new features designed to combat volume inflation, where exchanges massage the figures about the value of Bitcoin transactions they process to make their platforms seem bigger than they really are. The crypto data site now scores exchanges based on their liquidity, takes web traffic into account (after all, a bigger trading site should have more visitors), and uses a machine-learning algorithm to provide a confidence indicator—flagging potentially suspicious trading volumes.
Thomas Kettner, the managing director of VanEck-owned MVIS, said: “We are pleased to launch this index, which is designed to provide a price for Bitcoin which is hard to manipulate. The index follows our long-term mission in supporting new product developments with the aim of providing investors access to Bitcoin data.”
And Charles Hayter, the CEO and co-founder of CryptoCompare, added: “We are excited to be leading the charge to bring greater transparency to the digital asset class by providing high-quality data and trusted indices. Working in partnership with MVIS, we are pleased to offer investors a premium tool to better measure the performance of their Bitcoin exposure.”