Cryptocurrency market price industrial chain analysis: Who will be the “King of data”?
In the stock market, a stock ticker is absolutely crucial to an individual who wants to invest. One will want and need real-time updates of any changes in the market. This is something vital to possess if someone wants to have the advantage of the best opportunities to invest. It is because of this necessity that there are companies who specialize in this field, worth millions and more, that give out this type of service. In the blockchain and cryptocurrency world, the same necessity emerged from investors who play the market.
According to data from CoinMarketCap, the cryptocurrency total market value reached over 800 billion USD at its peak, and 24-hour trading volume reached over 60 billion USD at its highest. Presently, the cryptocurrency market has entered into a bear market, but the total market value is still over 200 billion USD, with the 24-hour trading volume keeping above 10 billion USD. For such a huge market, investors need real-time market data to stay updated on the status of the market. The difference that sets it apart from the stock market is that the cryptocurrency market is constantly being traded, 24/7 nonstop, and the market fluctuates widely. Investors need these data from the market to buy and sell at the right times. This is the setting for the birth of the cryptocurrency market data services.
- Cryptocurrency market price service industrial chain analysis
Cryptocurrency trading is still in its early stage of development. While it has some differences from traditional securities trading, they are based on similar concepts. This fact has determined that in the future they will become more and more similar. As a part of the ecological system of cryptocurrency, the market data services for this industry is also similar to that of the traditional financial industry.
To split the industrial chain into three parts, the upper stream consists of cryptocurrency exchanges and project teams. These parties will provide their data and other information to the middle stream, that being the parties who will collect and process the information and distribute it to the lower stream. The middle stream is the market price service providers and the lower stream is the consumers. The market price service provides are the core to this flow of data and they allow the consumers to invest based on the quality of information provided to them.
2. Overview of cryptocurrency market price service providers
The current head of the pack in the cryptocurrency market price service provider is CoinMarketCap. With over 60 million unique visitors and ranked 350 on Alexa’s global ranking of websites, ranking higher than the Wall Street Journal, it is the leading provider for pricing data on cryptocurrency.
CoinMarketCap has kept records of the price, market value, 24-hour volume, circulation, 24-hour price fluctuation, etc. of tokens that started going online, going as far back as April of 2013. If a project wants to get listed on CoinMarketCap, they will first need to apply with a cryptocurrency that is tradeable on a public exchange and be able to provide information to CoinMarketCap using API. The volume of the currency on the exchange must be above 0, and able to confirm the actual price of the currency. The information provided via API must be accurate in order to reflect the market price and rankings.
Other than token projects, centralized exchanges such as Binance, Bitfinex, OKEx, Huobi, etc. and decentralized exchanges such as DEx.top, Kyber Network, AirSwap, etc. provided their upper stream data to CoinMarketCap. After 5 years of accumulating data, CoinMarketCap is can be validated as one of the top players in the game of providing valuable pricing data to consumers.
In the Chinese market at the end of 2013, sosobtc (now AlCoin) and BiKan were established as a part of the market price providers. Soon after, FeiXiaoHao, MyToken, block.cc, BiNiuNiu, and others quickly joined this field to provide data to consumers.
From the point of view of the data, most of the market price providers have similar ways to process the data they were given. In most cases, they rank according to trading volume, and the data they use is given by trading exchanges. Because of this, it includes a lot of fraudulent data. In any field or industry, as long as there exists a ranking, there exists a motivation for fraudulent data. In the cases where they were to profit from it, people are inclined to use fraudulent methods to achieve higher rankings. For project teams, this method could potentially create an image of fluidity and create exposure for the project. For centralized exchanges, fraudulent data could cause them to rise in ranks, attract more projects to want to be listed on the exchange, and attract more potential investors to trade on the exchange. Thus, project teams and centralized exchanges all have a high motivation for wanting to use fraudulent data to their advantage. The question now is how can the playing field be leveled and create a more transparent and fair game? One of the ways to achieve this is by adding data dimensions.
Fluidity cannot be measured solely by using trading volume, market depth is a very important factor also. For example, bitcoinity.org uses market depth as a factor in determining fluidity. The definition of market depth is that when the market is experiencing a large sum trade, the price will not experience a large fluctuation. For this to happen, the trading exchange needs to be big enough, have enough trades, or the project needs to have enough fluidity. But because market depth does not have a standard of calculation, it is hard to compare it. This is the reason why it has not been adapted as a mainstream index for ranking.
Another noteworthy data provider is blockchaintransparency.org. They have also included visitor count into their calculation and published a report calling out many exchanges for having fraudulent data and using wash trading to create false data.
In the opinion of the author of this article, creating more dimensions in data cannot stop the falsification of data, but will largely increase the cost of creating fraudulent data. This will discourage the act and make data potentially more reliable. It will also require market price data providers to pay closer attention to the transparency and fairness of data, and induce more ways to measure index for a more comprehensive ranking system. Only with a more comprehensive analysis can a more unbiased ranking of projects and exchanges be created, thus providing more impartial data for investors.
3. Analysis of cryptocurrency market price data providers’ business models
Traditional securities exchange industry already has a history of a few centuries, it is very mature. This is the reason why the financial data service providers can provide a deeper, more comprehensive service. Cryptocurrency, being a new industry, only has less than a decade of history; it is still in the incremental market stage and contains a lot of unknowns and room for innovation. In reference to the matured securities industry, which has market-sharing between five to ten companies, the cryptocurrency market price data service is still in the “staking” stage of development. It is just not yet ready for competition. This means opportunity for the service providers. Of course, the cryptocurrency market data providers have a lot to learn from the tradition financial data providers.
Traditional financial data providers have three types of making profits:
Type 1: Comprehensive service oriented toward securities trading middleman. Service providers will charge fees for development, usage, and maintenance of software terminals from financial organizations.
Type 2: Value-added information service oriented towards terminal investors. Using the internet, service providers charge users through computers, mobile phones, and other portable devices. Contents of their service include providing securities information, professional analytic tools, research reports, and databases.
Type 3: Internet financial and economic services. Service providers provide for users financial information, news, and data to search or download. Using a website or mobile app’s data usage and the number of visitors to send out targeted advertisement and attract users to buy other services or products. Selling funds to their users would be an example.
What is the current business model of cryptocurrency market price data providers?
1. Advertisement service. Through research by the author of this article, the main type of business model is currently through advertising. Advertisement is one of the most mature models of the IT industry, thus it is not out of expectation that it can become the main source of profit from cryptocurrency market price data providers. But to provide advertisements, the service providers need a large, stable user base to have enough visitors to make a profit. E.g. the leader of the industry, CoinMarketCap, has a lot of Banner advertisement; BiNiuNiu has, besides banners, themed events, exchange spotlights, flash news, and other ways of advertising to make a profit.
2. Paid content and fees. E.g. BiKan released cryptocurrency vertical industry paid content “K Zhan” and introduced token incentive mechanism, expanded the paid content and wallet conversion fees etc. Exploring new business models for the industry.
3. Split profits with 3rd party exchanges. Alcoin has joined with 3rd party exchanges to allow the app to authorize OKEx. Huobi, BiAn, Bitfinex, etc. trading exchanges, the profits are split between Alcoin and the given exchanges.
4. Other value-added services. Some platforms even have voice call reminders to remind users if the price rises or drops to a certain price.
Because the industry is still in its early stages, there aren’t a lot of variety in business models; their profits are also limited. Most of the industry’s focus is on expanding their products and user base. Other than the exhibition of their information, there are other services and products offered. Such as: manually adding asset information or through import of exchange or wallet accounts; adding favorited tokens to closely follow its prices and setting alarms for reaching a price; mining monitoring; other wallet functions.
4. Summary of the trends of the cryptocurrency market price data industry
One can see from the above information that the industry is still currently in an early, chaotic phase. Many companies are still exploring different ideas and methods, blurring the lines and definition of the industry. Many data service providers will, on different levels, cross into social, content, and wallet industries. Although these are the most obvious entry points to start from, they might be too big to swallow for early startups, due to the fact that every entry point has competition doing similar things. The last one standing has to be the most in-depth and most professional.
Based on the opinion of author of this article, it is hard to compete in the industry doing only the basics of receiving data, processing it, and then providing it to users. Cryptocurrency markets are ever-changing, affected by a multitude of different factors, the success of an investor could depend on a split-second change in data. That is why the market price data providers need provide the fastest, most accurate market information, multi-dimensional data, and news to their users.
Furthermore, to excel in the industry, data service providers need to process and analyze data with more depth. Basic data is usually free, value-added services are provided at a cost, these are also the normality with traditional financial data providers. If cryptocurrency data providers want to outlast the competition, they will need to be more professional and more detail-oriented.
In the traditional financial data service provider industry, Bloomberg is one of the best in the world, with the company valued at over 100 billion dollars. Bloomberg exceled at data analysis and processing financial data given to them. Through providing this service, Bloomberg pushed their product Bloomberg Terminal into the hands of users, and through this product they provided even more information to their users. Things like Bloomberg News, Instant Bloomberg, etc. are all included in their app, their traces can be found everywhere in Wall Street. So the question is, who will rise to become the next Bloomberg in the cryptocurrency world? The battle to be the “King of data” in the cryptocurrency world has just begun.
Original Chinese article found here:
https://www.btc123.com/news/newsDetails/33863
