CM Real-Time Reference Rates Research Summary

In conjunction with today’s release of the beta version of the CM Real-Time Reference Rates, we have provided a summary of Coin Metrics’ substantial research and backtesting research.

CM Real-Time Reference Rates Research Summary

Coin Metrics has conducted substantial research and backtesting to develop the methodology used in the CM Real-Time Reference Rates. 

Like all Coin Metrics products, we took a systematic approach to our research for the CM Real-Time Reference Rates. First, we asked a series of core methodology questions. Using the recommendation to those questions, we evaluated various methodology options during times of reasonable stability. Finally, we extensively stress tested and evaluated the most promising methodologies during volatile markets. The best-performing methodology at the end of this process was selected. Below, we have provided a summary of our research.

The CM Real-Time Reference Rates and CM Reference Rates were extensively backtested against certain extraordinary periods of market stress. These include incidents in which prices were volatile, large spreads were observed between major exchanges, suspected price manipulation occurred, failures in internet and exchange-specific infrastructure, or periods during scheduled exchange maintenance. 

A sample of six recent events are shown below. In each case, the CM Real-Time Reference Rates and CM Reference Rates were robust to errors, outliers, and manipulation while being close to price where the majority of trades occurred. 

Widespread BTC-USD Rally on April 2, 2019

On April 2, 2019, Bitcoin’s price increased from roughly $4,200 to $5,000 in a span of one hour. There was no impactful news released during this time. Large trades were observed on HitBTC’s Bitcoin-Tether market immediately prior to the price movement (not shown below), although HitBTC’s pattern of trades are suspicious and wash trading cannot be ruled out. Large trades were then observed on Coinbase’s Bitcoin-US Dollar market followed by Bitfinex’s Bitcoin-US Dollar market.

Both the CM Real-Time Reference Rates and CM Reference Rates were robust to the large spreads observed between exchanges. The CM Reference Rates were robust to the momentary spike above $5,000. 

Bitstamp BTC-USD Incident on May 17, 2019

On May 17, 2019, the crypto market experienced a sharp decline without any news-related catalyst. Bitcoin’s price decreased from $7,700 to $6,600 in the span of one hour. Focused selling was observed on Bitstamp’s BTC-US Dollar market resulting in a sharp divergence in Bitstamp’s price relative to other major exchanges. Bitstamp was likely targeted because, at the time, it was one of two constituent markets used in the calculation of Bitmex’s bitcoin index. The selling on Bitstamp was executed in a way to maximize price impact and a $300 discount was observed on Bitstamp compared to other major exchanges. As the bid side of the order book was wiped completely clean on Bitstamp, a short and volatile period of price discovery followed.

Both the CM Real-Time Reference Rates and CM Reference Rates were robust to the suspected manipulation attempt on Bitstamp’s BTC-USD market.

Coinbase BTC-USD Incident on June 26, 2019

On June 26, 2019 at approximately 20:47 Coinbase reported degraded performance on their website. This coincided with a sharp sell-off in major markets and meaningful spreads were observed in US-based and US-regulated exchanges.

Both the CM Real-Time Reference Rates and CM Reference Rates were robust to the large spreads observed between exchanges. The CM Reference Rates were robust to the two momentary dip below $12,000 at 20:45 and 21:15.

Gemini Maintenance on July 2, 2019

On the night of July 1, 2019, Gemini initiated a scheduled maintenance for a period of four hours. This maintenance was extended for another four hours and concluded on the morning of June 2, 2016. Upon returning from maintenance, a large spread was observed between Gemini and other US-based and US-regulated markets for a short period of time.

Both the CM Real-Time Reference Rates and CM Reference Rates were robust to the anomalous trades that occurred when Gemini finished its scheduled maintenance and began trading. 

Cloudflare Incident on July 2, 2019

On July 2, 2019, a major outage impacted all of Cloudflare’s services globally. Many cryptocurrency exchanges were affected and unavailable to many customers for a span of about one hour, roughly from 13:50 to 14:50. During this hour, decreased trading activity was observed on major exchanges.

Despite the global interruption caused by Cloudflare, Coin Metrics’ market input data layer was unaffected and continued to ingest trades and produce reliable Real-Time Reference Rates and Reference Rates during this time. 

Bitstamp ETH-USD Incident on July 14, 2019

Similar to the incident in BTC-USD markets on May 17, 2019, focused selling was observed on Bitstamp’s ETH-USD market over the course of several minutes on July 14, 2019. Ethereum’s price decreased from $270 to $245 during this time. A $60 spread was observed on Bitstamp’s market and other major markets. Bitstamp was once again targeted likely because it is one of three constituents in Bitmex’s ethereum index.

Similar to the event that occurred on Bitstamp’s BTC-USD market on May 17, 2019, both the CM Real-Time Reference Rates and CM Reference Rates were robust to the suspected manipulation attempt on Bitstamp’s market. 

Please reach out to Coin Metrics ([email protected]) for more information on the CM Real-Time Reference Rates or the CM Reference Rates.

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