The Bitcoin Index may change significantly if exchanges which have been left out before are now considered, according to plans by BitcoinAverage.
Technical market analysis usually involves mathematical calculations of certain averages and is usually influenced by the volume of trades over a given period of time. In the Bitcoin world it is known that some exchanges don’t charge fees on either side of trades.
Exchanges that manipulate volume of trade
Exchanges which do not charge fees are mostly omitted on the Bitcoin index. This is usually due to the suspicion of the “faking” of the volumes traded.
Shaun Gilchrist, Founder and CEO at BitcoinAverage, explains to Cointelegraph:
“A lack of fee means technically unlimited trading on a very tiny spread, and the short of this is hugely increased volume.”
Without trading fees it’s easy to bloat the volume, whether bots or some person sitting in a room manipulating figures at the push of a button or at the shout of a command, it’s artificial, and noticeably so. Back in December a social media user posted an image showing over BTC 1 million traded in a single day at the Beijing-based exchange, Okcoin which is known as China’s largest Bitcoin exchange.
According to Gilchrist, such exchanges can no longer be ignored.
We must consider a fair structure
Speaking to Cointelegraph, the Managing Principal at Citizen Fusion, Stephen Corliss, says that the subject of fragmented markets has been discussed and debated for nearly a century. He points out that as far back as 1976, the idea of a CLOB (Consolidated Limited Order Book) was first proposed to the SEC by Professors Mendelson, Williams, Jr and Peake shortly after Congress told the SEC to create a National Market System.
Corliss says that the idea of a CLOB is based on one very simple premise, “the best prices are attained when the orders of all potential buyers and sellers have the opportunity to interact”.
The absence of such a central order book consisting of both private (limit) and public (market) orders leads to disparate liquidity pools enabling intermarket arbitrage.
“We can debate which option is best, consolidation or competition, but if we ever plan to involve the masses in this activity, including institutional investors and broader society, then we must consider a structure which is fair, else risk others defining this for you.”
Regardless of one’s opinion, a simple fact which we cannot overlook, says Corliss, is that consumers (not digital ccy traders) always expect pricing parity and thus are not going to bounce around between disparate exchanges to locate the best price.
Considering that global lawmakers and regulators primary focus is always “consumer protection”, Corliss says to Cointelegraph:
“I would strongly suggest that we all think about what this means to each of our businesses. By the way, I know the traditional markets have fought against a CLOB for years, and have won the debate thus far, but the competitive market structure has significant issues which are outside of this question.”
There is room for suspicious exchanges
Shaun Gilchrist of BitcoinAverage says that his company has development plans to begin including such exchanges as Okcoin in its analysis. He says that this will happen soon after their newest upgrades currently in beta testing are released.
“We are in the process of testing Okcoin against our new algorithm to catch such exchanges. Once we have enough data, we’ll know if the current algorithm is viable to include in beta.”
Okcoin is China’s largest Bitcoin exchange and has been suspected for years of “faking” volume traded.
Okcoin may even be, according to FinanceMagnates.com, the largest exchange in the world and operates both CNY/BTC and USD/BTC with plans discussed last year of expanding into consumer and merchant products.
“It’s been debated a hundred times over, so it’s time to sit down and address it properly. We hope we’ll be able to come up with an algorithm to cater to them, but making it stand the test of time is a pretty tricky business.”