While cryptocurrency exchanges, trading firms and investment funds lay off staff in droves, one sector is bucking last year’s savage bear market: data provision and analytics.
Several companies involved in collecting, cleaning, analysing and distributing cryptocurrency data told New Money Review that they are increasing their staffing levels, raising new finance, or both.
None of the established media giants have yet made a significant move into cryptocurrency data and analytics, leaving the field open for a variety of start-ups.
Yet the firms wishing to stake a claim to be the next cryptocurrency market Bloomberg or Markit have to grapple with a number of challenges specific to this asset class.
These challenges include the open-source and highly decentralized data landscape; the non-stop nature of trading; the lack of information on off-exchange transactions; the tendency of some cryptocurrency networks to mutate; and the separation of internal (or ‘on-chain’) and external, market data.
Ambre Soubiran, chief executive of Paris-based cryptocurrency market data provider Kaiko, contrasts cryptocurrency market information with that available in the equities market.
“In equities, you have an official exchange closing price, which you can use as an input to settle financial contracts such as derivatives,” Soubiran told New Money Review.
“Market data in the traditional financial industry is relatively well-structured and there are a few mainstream data providers. But the cryptocurrency market is the Wild West by comparison. Every exchange has its own application programming interface (API).”
“In some ways, it’s unregulated chaos”, says Mark Griffiths, technical lead at cryptocurrency data and index start-up CryptoComposite: “There are thousands of crypto tokens and anyone can start an exchange with the right API set-up. The whole space is full of religious wars, vendettas and many, many tribes.”
Some data providers seek to justify charging for cryptocurrency market price information by adding verification, breadth and granularity to such open-access price feeds.
There can be other challenges involved in taking cryptocurrency exchanges’ information at face value: “Volume data on exchanges can be inflated,” says CryptoComposite’s Mark Griffiths. “So you try to spread yourself deep and wide to allow your volume-weighted price algorithm to smooth all that out.”
Concerns about market manipulation and the absence of reliable market data have been cited by the US securities market regulator as key reasons for delaying the approval of bitcoin exchange-traded funds (ETFs).
Meeting the demands of regulators is one thing. But cryptocurrency data providers are also looking ahead to try and map the structure of a market that continues to evolve at break-neck speed.
And therein lies the big commercial opportunity that cryptocurrency data firms aim to capitalize on: “Gathering the data will be harder and harder, but it will become more valuable,” predicted Kaiko’s Ambre Soubiran.