[Editor's note: The Bitcoin Price calculation method mentioned in this article originated from the Bitcoinaverage.com open-source project.]
Bitcoin.info has officially announced its launch in a move to improve the way Bitcoin’s price is determined.
With the explosion of interest in Bitcoin over the last 24 months, keywords, trademarks and domain names around bitcoin have become somewhat of a commodity. Techemy Ltd, a NZ based start-up, has secured a key domain name in the Bitcoin space: bitcoin.info.
Company co-founder and CEO, Fran Strajnar commented on the launch:
“After having spent 11 months building a stable price index (BNC Price-Index via Bravenewcoin.com), we wanted to offer the world a clean website with a solid domain name for 1 reason: Accurate Price-Discovery (and related tools).”
According to Investopedia, Price-Discovery is a method of determining the price for a specific commodity or security through basic supply and demand factors related to the market. However, in a relatively small but rapidly growing industry such as Bitcoin, this method needs some time to develop.
“MtGox represented the bulk of trading in Bitcoin until the end of 2013. It was easy to discover the price during Gox’s reign,” explains Strajnar. “Since then, literally dozens of exchanges have opened shop all around the world and surprisingly no other index out there, captures anywhere near all of this data, making Price Discovery somewhat questionable.”
What sorts of services rely on an accurate global BTC price?
- Wallets: Consumers want to pay an accurate market price at all times.
- Futures & Financial products: Financial products require stable backbone. One example: 796.com, the world’s largest Bitcoin-Futures exchange, uses this API calculate their Millions of USD worth of weekly settlements.
- Billing platforms: Invoicing & billing services require a current price to generate correct fiat figures for business owners.
- Portfolio Management: Tracking your client’s or your own investments.
- Gaming Industry: Settlement calculation or Fiat value displayed to gamers.
- News & info Services: News agencies and search engines can now display comprehensive market data.
- Any possible product or service that requires an accurate Fiat price for Bitcoin.
Indeed, inaccurate prices and trading volumes could certainly have a negative impact on Bitcoin’s growth as the mass media tends to quote some of the most popular BPI’s, which only constitute roughly 10% of the actual volume where only a small number of the most popular exchanges are taken into account.
For example, the trading volume for Bitcoin according to BNC for the past 24 hours was almost US$ 200 million compared to Coinmarketcap’s US$16 million. Of course, this type of disparity is unacceptable for the 5 year old Bitcoin economy going forward and a more accurate method is desperately needed.
Cointelegraph reached out to Fran Strajnar to ask some more questions about how Bitcoin’s price is determined and why some of the most popular BTC Price Indexes may not be the most reliable and accurate for a rapidly-growing industry.
-Bitcoin.info co-founder and CEO, Fran Strajnar
Cointelegraph: Apart from the attractive domain name, why did you launch bitcoin.info and what’s the problem with the current way the price and volumes are determined?
Fran Strajnar: We are offering a true Price-Discovery mechanism for Bitcoin to the industry for free via bitcoin.info so that people can have this fundamental foundation and just get on with the many projects that require said foundation.
For an industry that's now 5 years old and maturing to the point where institutional players are getting involved, we still have wide disparity in the Price-Discovery mechanism in the Bitcoin eco-system. In order for the industry to continue to grow, we require these basic 'rails.'
Price-Discovery is a basic concept but due to the technical nature of Blockchain Technology and the varying quality of data feeds from different exchanges, accurate price discovery and market-info has been difficult to achieve. Compliments to BitcoinAverage for doing a great job so far by tracking around 16 exchanges.
What we aim to do is capture every single exchange as they come to life, including all trading information from the entire market in real-time. We are up to 60 live exchanges and 30 fiat pairs now. The market was as small as 5 exchanges 12 months ago.
Bitcoin.info displays the Bitcoin market statistics but our engines capture a variety of crypto-currencies, which we display here. We are particularly interested in tracking the crypto-assets being released through XCP, MST and other 2.0 platforms as these hold long-term promise.
CT: We have seen that different volumes are displayed across different media outlets. Why do you think these figures are so disparate?
FS: Again, surveying the entire market and capturing all data is not easy. Most indexes grab data from 3-6 exchanges and call it 'an index.' Capturing a handful of exchange volumes will show you only a fraction of the Bitcoin marketplace and then writers from Bloomberg, WSJ, Forbes, and Tech-Crunch etc. look at these incorrect figures and quote them as being the true market information. This is what I'd like to change so that professionals and institutional players looking at the Bitcoin ecosystem are reading the correct data.
CT: What method does Bitcoin.info (BraveNewCoin) use to calculate the BTC price compared to Coindesk’s BPI, for example?
FS: The indexes out there, not just the one you mentioned, but several others use a wide variety of methodology with oftentimes interesting 'rules.’ We decided from the start that the only way to have a truly global price-index was to include anything that actually happened.
‘If it was traded, it's part of the market and therefore should be included’ without rules excluding exchanges unless they are proven to be fabricating trade info. I can see why we have up to 10x more exchanges than others. It wasn't easy and requires constant upkeep.
Our methodology can be found here.
Brief summary of the calculations:
- 'Last purchase price' (last executed trade) from each exchange for a particular pair (like BTC/CNY) along with the volume traded in the last 24 hours.
- The mathematical standard formula for Volume Weighting Price is applied (en.wikipedia.org/wiki/Volume-weighted_average_price)
- Once we have this average for each trading pair (called a Market-Average), we then convert everything to USD and finally
- Run the formula again to get a 24hour Global Weighted Average in USD.
- To display the price in Euros, Yen or any other currency, we simply convert back the global average in USD to the desired fiat currency.
CT: Is it possible that these inaccuracies in price across the Bitcoin space are contributing to its volatility?
FS: Yes to a degree. Bitcoin's price is volatile due to many more reasons, however.
CT: What do you think about the Winkdex index by Cameron and Tyler Winklevoss, for example, in terms of accuracy?
FS: I can only assume that the Winkdex was created so the twins have a way to show their accountants their net worth. It cannot be used by institutional investors as a serious measure of the Bitcoin marketplace as it only uses the top 3 USD trading exchanges via a proprietary (and... of-course trademarked) methodology.
Standard formulas for weighted averages are the only thing anybody should be using and their data represents less than 10% of the trading taking place, therefore making the Bitcoin marketplace look much smaller than it really is.
CT: Do you think this misrepresentation of the volumes could negatively affect how Bitcoin is perceived by investors and the general public going forward?
FS: All traders/investors need to know the current prices both as a global average and localized prices to make trading decisions and determine risk & ROI. Stability in price-discovery is very important at this early stage in Bitcoin's lifecycle because products and services are built on-top of this fundamental layer and with disparity comes a bad PR image from those looking to come into Bitcoin.
Many users try different wallets, apps and services, which display their BTC balance in a Fiat currency. My blockchain.info balance will show a different conversion to the price on some websites or apps and this disparity may create uncertainty to those just new to Bitcoin or thinking about getting into Bitcoin.
CT: Is this why you decided to offer your API for free?
FS: We consider Price-Discovery mechanism as a 'public-good' and we won't charge for this.
It's free, accurate and stable - anybody is welcome to it.
The API is available here: api.bravenewcoin.com/ticker/bnc_ticker_btc.json
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