Triangulating The Price Of Bitcoin

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This will be last bitcoin story of the month – promise. 

CoinDesk, one of the largest digital media outlets focused on cryptocurrency, announced yesterday a deal to acquire TradeBlock, a bitcoin-focused subscription data company. 

The Building Blocks of Bitcoin

TradeBlock’s most notable product, the XBX index, addresses a fundamental and underappreciated reality of bitcoin: knowing its “true” price at any given time is a bit of a mystery.

Unlike equities which trade on centralized exchanges (like the New York Stock Exchange), bitcoin and its crypto brethren are traded on hundreds of digital exchanges around the world. 

Other large bitcoin transactions, we presume, happen in back alleys by way of USB flash drives. 

Why That Matters: As bitcoin continues to gain acceptance in the mainstream financial community, knowing what it’s “worth” at any given time becomes important.  An accurate reference price is needed to build financial products underpinned by bitcoin – such as ETFs.

TradeBlock’s XBX is an “institutional-quality” reference rate which compiles data from exchanges across the globe as well as from “verified” off-exchange trades.  It is used as the benchmark price that underpins investment vehicles such as the Grayscale Bitcoin Trust.

The Grayscale Bitcoin Trust has seen its assets climb from $2.5 billion in June 2019 to $20 billion last month.   

With investor interest soaring, old-world data players are beginning to take notice.  Last fall S&P announced it would soon launch its own cryptocurrency index.

Takeaway: None of this is relevant for the folks who believe bitcoin is worthless.