Clean Pricing Data in the Digital Asset Marketplace — DAR Data Services
The cryptocurrency space is currently saturated with news about market manipulation and falsely inflated trading volumes. These issues have been top-of-mind for the SEC, which has continually rejected applications for the creation of a Bitcoin ETF. The SEC’s concerns have focused around market manipulation and the need to protect investors from bad actors in this space.
While past Bitcoin ETF applicants have argued that the digital asset marketplace is not susceptible to manipulation, Bitwise recently presented an interesting and in-depth report to the SEC with a different approach.
Bitwise’s report looked at the top 80 digital asset exchanges and found that as much as 95% of the reported trading volume is fake. Their analysis addressed the SEC’s concerns using empirical evidence — an aspect that was notably missing from past applications.
A majority of the reporting around Bitwise’s presentation has been on the shocking amount of non-economic trading by a significant number of the largest digital asset exchanges.
“We will demonstrate in multiple different ways that approximately 95% of this volume 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” (Bitwise Report)
However, Bitwise’s report also highlighted that, while there are still issues to address on the road to regulatory acceptance, there are exchanges working to bring transparency and institutionalization to the marketplace.
As the digital asset market continues to mature and attract the attention of the world’s largest financial institutions, the need for “clean data” is greater than ever. Given the current climate, the question then becomes — which digital asset exchanges can be trusted?
For more than a year now, DAR Data Services (DDS) has sought to answer this question.
Better Vetting, Better Data
DDS is a sister company of Digital Asset Research (DAR), a leading cryptocurrency research firm that provides institutional investors with unbiased analysis of specific tokens and thematic reports on issues and trends in the digital asset marketplace. While building research reports, DAR recognized the unmet need for clean digital asset pricing. A core team of experts spun out of DAR to start providing vetted, relevant, and clean digital asset prices to index providers, investors, valuation agents, and analysts.
DDS understands that the best way to encourage and promote value in the digital asset marketplace is to work towards institutional and regulatory acceptance of this asset class. In order to accomplish this, DDS has been pioneering “clean pricing” by employing a strategy that includes both upfront vetting and analytical-based cleaning of pricing data.
DDS has taken a comprehensive approach that looks at publicly available information, confidential intelligence, and practical confirmation to review over 100 of the largest digital asset exchanges in order to determine best practices in the industry.
First, DDS assesses the institutional controls and governance in place with each exchange. This review includes, among several other factors, a review of
- The robustness of Know Your Customer (KYC) and Anti-Money Laundering (AML) policies
- A history of unexpected downtime or security breaches
- Thorough and sound listing policies and custody practices
- Issues such as insurance and market surveillance practices
Second, DDS explores the regulatory and legal compliance of each exchange. DDS makes a geographic specific inquiry into the political and regulatory climate of each exchange’s domicile. This can include questions such as whether capital controls are in place and the attitude of regulators towards digital assets in the exchange’s host country. Each exchange’s unique path towards regulatory compliance within its jurisdiction is also examined.
Third, DDS reviews issues around an exchange’s transparency and accessibility. This review includes whether an exchange has a publicly identifiable leadership team with appropriate backgrounds and composition and ensuring a user’s accessibility to a qualified support team that responded timely and thoroughly.
Lastly, DDS investigates each exchange’s reported trading volume, ensuring the exchange is not engaging in wash trading or other manipulation by comparing a set of both qualitative and quantitative factors. Qualitative data points such as Twitter followers and mentions, search results, and number of employees are compared to peer groups to ensure the exchange has a reasonable community for its trading size.
Quantitative factors are also analyzed, including whether asset pricing follows the majority of the market, whether the trading volumes follow natural, irregular patterns, and whether trade lots occur in a standard distribution, especially compared to other players in the ecosystem.
Data from each vetted contributor is then quality screened to remove erroneous, duplicative and outlying prices. This 360-degree process ensures clean pricing, building the foundation for DDS’s pricing products which range from end of period, daily and intraday prices to live feeds updating up to every 15 seconds. DDS works with each client to create a custom solution that takes into account the exchanges, standards and methodology that makes the most sense for each client’s particular pricing needs.
Working together with industry leaders, DDS’s vetted data sets the standard for clean prices in the cryptocurrency marketplace. DDS will continue to track the digital asset universe and work closely with its exchange partners. Its ongoing and evolving vetting process responds to both customer and regulator concerns, allowing DDS to create custom pricing solutions for the cryptocurrency marketplace.
DAR Data Services is a specialist firm focused on pricing, blockchain, and events data for cryptocurrencies and digital assets. DDS is headquartered in New York and provides data to investors, exchanges, administrators, auditors, technology providers and other institutional industry participants with crypto, data science, and capital markets experience. DDS helps institutional clients fit crypto into their overall strategy.
To learn about DAR Data Services and our clean pricing products, visit their website at dardataservices.com
