After recent concerns regarding Bitfinex’s liquidity and price premium, CoinMarketCap (CMC) has excluded the exchange’s activity from their Bitcoin price, as reported by Finance Magnates on May 6, 2019. Bitfinex has traded at a $300 premium from the market for several months now.
Twists and Turns for Bitfinex
The Bitfinex saga has taken a new turn as CoinMarketCap has excluded their volume while pricing Bitcoin on their website, this comes after controversy added on following Bitfinex being accused of hiding $850 million worth of customer losses with USD Tether. The crypto community has mounted pressure on Bitfinex as they have taken months to process withdrawals from their exchange. In light of the litigation surrounding iFinex, the parent entity of Bitfinex and Tether, BTCManager reported over 17,000 BTC and 750,000 ETH were moved from the exchanges recognized cold wallets.
On the CMC website, there is an asterisk next to Bitfinex that denotes that “price is not included” in the data provider’s Bitcoin price caluclation. The methodology for pricing coins on their website states the policy of CMC is to use a volume weighted price average for each coin they have on their website. Some prices, denoted with an asterisk, are not included in the pricing because they are not indicative of a free market; this includes exchanges in Brazil and India, and now Bitfinex.
When an exchange halts deposits and withdrawals, it isn’t just a sign of mismanagement but also indicates prices will trade with a liquidity premium. In order prevent data skew for the weighted average, CMC tends to ignore this volume as long as the exchange is not functioning on par with its peers. When there is a significant premium that represents something drastically wrong, CMC’s algorithm automatically excludes this data and lists it with three asterisks. However, the volume for these exchanges is not excluded on their website – only their impact on price.
Bitfinex IEO and CoinMarketCap’s Redemption Attempts
CoinMarketCap has come under pressure for including volume from exchanges that do not represent free market trading. In a follow up to crackdown on such exchanges impact on prices, CMC excluded prices of notable exchanges such as HitBTC and OkEx to prevent their premiums from affecting their data.
In light of their liquidity problems, Bitfinex is launching an Initial Exchange Offering (IEO) for a reported $1 billion dollars. IEO’s are the newest craze following Binance’s BNB token exploding in 2019. The exchange is likely raising this money to fund it’s activities rather than try and provide ease and value to their customers. Analysts in the space are speculating that Bitfinex is launching this offering to once again create money out of thin air as it has with Tether.