How Accurate is Kaiko’s Bitcoin Price Index?

How Accurate is Kaiko’s Bitcoin Price Index?

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Price has been Bitcoin’s hot topic these past weeks, shooting to levels some are calling all-time highs but falling back before making a moonshot. But just how accurate is Kaiko’s Bitcoin Price Index at tracking these movements?

Also read: Trading Bitcoin on the Street: How’s LocalBitcoins Doing in 2016?

This is information you need to know if your business deals with interactions between bitcoin and the fiat currency world. If you run a company where you must hedge against price volatility, examining trends is even more vital.

That is what Kaiko does best. Our brand-new Bitcoin and Ethereum Market Report is on sale now, with all the data.

Kaiko Bitcoin Price Indices

We’ve been publishing Kaiko’s Bitcoin Price Indices since March to give Bitcoiners a more realistic indication of the prices they’re paying (and should be paying) for bitcoin. Now, our Bitcoin and Ethereum Market Report shows how those indices have performed in the first half of 2016.

Kaiko launched four price indices – one for each of bitcoin’s three main trading currencies (USD, CNY, EUR) plus a whole-world index in USD – after a year of testing.

Other indices have claimed to show the ‘true’ value of bitcoin, but the Kaiko team felt their methodologies did not account accurately for differences between Bitcoin exchanges and the way they operate.

A simple average of all prices isn’t enough. We need to dig deeper, examine orders placed on different exchanges and volumes actually bought and sold. There is more on our methodology here, as well as in the report.

How Much Bitcoin Will Move the Price?

As our data has shown previously, some popular exchanges show massive volumes while others have high liquidity. I’m you’re a Bitcoin “whale” – the kind looking to move a million dollars worth of bitcoin or more – you’ll get very different results from those services.

Try to sell that bitcoin at a high-volume/low-liquidity exchange, eg: Huobi, and you’ll see the price fall before your trade is complete. This isn’t ideal.

On the other hand, if you’re an algo-trader looking to make money off tiny fluctuations in the price with thousands of micro-transactions, exchanges like Huobi are great.  

How Accurate Is it?

Kaiko’s indices are weighted averages of the most active bitcoin exchanges.

For BTC USD the results show that the most liquid exchanges show a  +/- 2% deviation from the index, which on a $500 USD bitcoin price can amount to a $10 difference. During periods of high volatility, like in May this year, prices on different exchanges can vary wildly and it was during these periods that prices skewed further from Kaiko’s indices.

The Importance of Chinese Prices

Price deviation from Kaiko US Price Index from December 2015 to May 2016 (BTCUSD)It has long been speculated that price trends appear in China first. Kaiko integrates CNY exchanges in its global index calculation, which has resulted in our prices often moving ahead of other price indices. The fact that we have currency-specific price indices also allows us to monitor that difference.

Price deviation from Kaiko CN Price Index from December 2015 to May 2016 (BTCCNY)

CNY exchange (Huobi, OKCoin and BTCC) prices are very close with the highest deviations only around 0.2% even during heavy trading periods.

Overall we’ve been very pleased with the performance of the Kaiko Bitcoin Price Indices and stand by our claim that they represent the world’s most accurate indication of the ‘true’ value of a bitcoin.

A Complete Industry Overview

Kaiko’s Bitcoin and Ethereum Market Report is the first in a series the company is producing to give an accurate, statistics-based overview of the digital currency industry. Over the coming months, more reports will be published to examine other sectors of the bitcoin industry, such as mining.

The initial report, focusing on the exchange industry, is now available for purchase on the Bitcoin.com Store, and covers the period December 1st, 2015 to May 31st, 2016.

The report looks at the currency pairs of most interest to the digital currency industry at the time of publication: BTC-USD, BTC-EUR, BTC-CNY, ETH-BTC, and ETH-USD.

All underlying data from the report is also available for purchase, should anyone in the industry wish to re-crunch parts of it.

Who Are Kaiko?

Pascal Gauthier CEO Kaiko.com
Pascal Gauthier, CEO Kaiko.com

Kaiko launched in 2015, with a stated goal to become the Ultimate Data Source for Bitcoin. Its mission is to organize Bitcoin’s information to help businesses succeed by providing data, insights and services.

Over the past year we’ve been happy to cooperate with premier sites like Bitcoin.com and BitMEX to supply price and other network data charts, with the aim of helping bitcoin and digital currency users make better decisions.

The company now has eight staff and is looking to hire more talented data professionals and developers at its headquarters in Paris.

Do you monitor the bitcoin price as closely as Kaiko does? What do you consider the ‘real’ value of a bitcoin internationally?


Images courtesy of Kaiko, giaepecn.dynu.com