XBX Update: Removing Bitfinex, Adding Kraken

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Starting this Wednesday, May 3rd at 20:00 EDT, TradeBlock’s XBX index will include trade data from Kraken and no longer include Bitfinex. With this update, TradeBlock’s XBX index will track liquidity across significant and regulated XBT/USD & XBT/EUR markets.

Bitfinex USD Withdrawals & Deposits

On April 13th, 2017 Bitfinex announced that its outbound USD wire transfers were experiencing significant delays. Bitfinex stated that the delays were the product of Wells Fargo refusing to continue servicing the wire operations that the exchange relies on to transfer US funds to their customers.

In a lawsuit filed by Bitfinex on April 5th (since withdrawn), Bitfinex (the plaintiff) stated: “Wells Fargo has suspended U.S. dollar wire transfer operations needed to remit to plaintiffs’ customers U.S. dollars that the customers deposited with plaintiffs to purchase digital currency, causing imminent and irreparable harm to plaintiffs.”

While Bitfinex is not a direct customer of the bank, Wells Fargo is an intermediary in the banking network used by the exchange. By refusing to service USD wire transfers originating from Bitfinex, Wells Fargo has excluded them from a large part of the global banking apparatus and from accessing the largest economy in the world.

Bitfinex has claimed that work is in progress to find alternatives that will allow them to restore outbound US wire transfers. However, as of the date of this writing, there isn’t an accurate notion of the extent of the delays, the amount of US-based users affected and the feasibility of the efforts to find alternatives for their USD wire transfer operations. Bitfinex has also announced that it has paused incoming USD deposits and outbound transfers of other currencies.

As such, it has become impractical, if not impossible for US-based customers to access bitcoin liquidity through the Bitfinex market. In line with TradeBlock’s XBX index guidelines, Bitfinex trade data will no longer be included as part of the XBX index calculation.

Bitfinex De-weighted in Real Time by XBX Algorithm

The Bitfinex XBT/USD price has seen a notable increase since its users began experiencing delays and issues with USD withdrawals. It can be theorized that Bitfinex customers are increasingly buying bitcoin at the exchange in order to move their funds to other venues or to their wallets. The theory would explain the XBT/USD price premium over the rest of the markets observed at Bitfinex during the days following the USD withdrawal freeze (currently at 7% over the XBX index reference rate).

Notably, the price discrepancy at Bitfinex has been taken into account by the algorithm underlying the XBX index and the exchange’s weight in the index has been automatically and considerably discounted. By design, this has mitigated the influence of Bitfinex problems in the USD reference rate for the price of bitcoin provided by the XBX index. The chart below highlights the automated reduction in the 24h average weighting of Bitfinex’s price in the index, and the price divergence between Bitfinex and the rate calculated by the XBX index.

XBX Weights

It is important to point out that Bitfinex’s price has been discounted despite the fact that their XBT/USD trading volume has continued to represent the highest share of market. Events such as this continue to highlight the importance of an index that is designed to respond effectively to a wide range of market anomalies in real time.

2 - Constituents Share

Adding Kraken and Revisiting the XBT/EUR cross

The events at Bitifnex are not isolated. On April 19th OKCoin posted a notice visible to their users informing them that USD deposits would no longer be accepted, BTC-e also posted a similar notice on April 14th. The restrictions at these venues have a direct impact on the liquidity options accessible to US-based investors.

Given the current state of the world’s bitcoin markets, TradeBlock has decided to include Kraken’s XBT/EUR cross in the XBX index calculation. The inclusion of the Kraken exchange will increase the index’s exposure to the global price of bitcoin by including market activity from a traditionally well-regulated region, run by a company headquartered in the United States.

Kraken has been the world’s leading exchange by measure of XBT/EUR trading volume. Trading volumes at the venue have been historically stable with a sustained positive growth trend. The charts below display the trading volume activity over the past 6 months at Kraken and how its USD converted XBT/EUR price has traded close to the rest of the XBX constituents.

 

Kraken Volume

 

4pm Prices

Kraken (XBT/EUR) has been a constituent of the XBX index in the past. The exchange formed part of the XBX index until May of 2015 when it was removed as the XBT/USD trading volume of exchanges around the world started picking up. It’s re-inclusion is a direct response to the  shifting landscape of regulations and liquidity.

As unbiased observers of the bitcoin market, TradeBlock strives to provide a representative reference rate for the price of bitcoin. TradeBlock will continue to study and consider all markets participants that have significant trading volume, visible and sensible compliance practices, industry-standard trading mechanisms, publicly-known ownership and that impose no restrictions on their investors.

Bitfinex will be phased out and Kraken phased in over the 24 hour period beginning on 20:00 EDT on Wednesday, May 3rd and ending at 20:00 on Thursday, May 4th.

For further information about the TradeBlock XBX index, please see our online tools at tradeblock.com/markets/index.

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