Digital Asset Research (DAR), the independent cryptocurrency data and analytics firm, has published the results of its quarterly analysis of cryptocurrency exchanges. This program is designed to identify those venues that meet rigorous measures of integrity, performance and reliability.
Fewer than ten – or less than 4% – of the over 250 exchanges analyzed in this ratings cycle demonstrated the integrity of pricing, volumes, valuations and infrastructure to be deemed as ‘trustworthy’ for investors. These venues include Bitfinex, Bitflyer, Bitstamp, Coinbase Pro, Gemini, Itbit by Paxos, Kraken, Liquid and Poloniex.
This analysis, which is conducted quarterly for clients also aims to reduce the impact of price discrepancies across the fragmented exchange landscape. In prior examinations, DAR found that Bitcoin price discrepancies between ‘trustworthy’ exchanges and data from overall industry exchanges averaged 1.14% – equal to a $1 billion+ gap in market value. These discrepancies were significantly higher for less liquid cryptocurrencies.
“Regulators have repeatedly cited the need for an authoritative price,” said Erin Friez, General Counsel and Executive Vice President at DAR. “It’s still an emerging space, but we’re at the point where pricing, protections and performance have to be as clean as possible to promote accuracy and trust. It’s also a fast-moving environment where some exchanges know how to adapt their trade data in light of scrutiny, which is why we felt a rigorous, evolving quarterly analysis was the ideal approach to provide confidence and foster maturity.”
Accurate, quality cryptocurrency pricing is critical for the industry to shift into its next growth stage. Price distortions hamper the quality of valuations and risk management. Regulators have cited quality of pricing and the potential for manipulation as the primary barrier to the approval of a cryptocurrency ETP.
Appendix: Comments from cryptocurrency exchanges
“We are at a point where the advancement of fair and orderly markets can only be achieved by a conscious decision to support initiatives that introduce robust and authoritative pricing to the digital asset markets. I firmly believe that our focus on transparency, regulatory compliance, and market surveillance will best position Bitstamp and its partners to lead the way towards market maturity and institutional adoption.” – Miha Grcar, Head of Business Development at Bitstamp
“Thoughtful regulation creates healthy markets and Gemini has adopted a compliance-first and regulatory-friendly approach since the start. It’s important to provide our institutional and retail investors with a secure and well-vetted marketplace to buy, sell, and store their cryptocurrency,” said Jeanine Hightower-Sellitto, Managing Director of Operations at Gemini. “We are proud to consistently set the bar for the highest KYC/AML standards in the cryptocurrency industry.”
“Creating secure markets and maintaining the integrity of those markets is why we got into this business, said Jesse Powell, CEO of Kraken digital asset exchange. “We’re thrilled to be recognized by objective sources for our efforts to become one of the most trusted exchanges for millions of investors each day.”
“Liquid is committed to the development of institutional products in the cryptocurrency market ecosystem. By working with Digital Asset Research, Liquid is committed to facilitate legitimate trading between real buyers and real sellers and investor protections.” – Mike Kayamori, CEO of Liquid
Appendix: DAR cryptocurrency ratings system criteria
DAR’s vetting system features a series of quantitative tests that seek to identify disparities in trade and order book data patterns. These tests are coupled with qualitative measures, focused on infrastructure, governance and other factors correlated with investor protection. To maintain the integrity of its vetting system, DAR reviews and enhances the process quarterly.
|Indicative Quantitative Tests||Indicative Qualitative Tests|
|Encompassing: price, volume, order book, blockchain, and other ecosystem dataBuy-sell permutations – frequency and typeCorrelation testingTrade lot sizesMarket abuse measures||AML/KYC policiesProtection: Custody, maintenance/service uptime, cold storageGovernance: leadership team, business continuity, reportingTrade surveillance and compliance|
Additional insights on how DAR models its cryptocurrency exchange analysis can be viewed on the firm’s Medium page, in a post titled ‘Clean Prices: A Required Step for Crypto to Mature.’ A detailed report and methodology is also available on request.