CoinDesk Removes Mt. Gox from Bitcoin Price Index
Published on February 10, 2014 at 16:09 GMT
CoinDesk has removed Mt. Gox from the Bitcoin Price Index today (as of 16:00 GMT), due to its persistent failure to meet the Index’s standards for inclusion.
Ultimately, the decision to remove Mt. Gox from the BPI was prompted by Friday’s announcement that bitcoin (BTC) withdrawals had been suspended until Monday, and today’s follow-up announcement that bitcoin withdrawals would now be suspended indefinitely. This was due to a previously known technical issue with Mt. Gox's custom wallet implementation of the Bitcoin core protocol.
However, these recent withdrawal restrictions are just the latest in a series of issues which have made Mt. Gox’s inclusion in the BPI problematic.
Concerns over Mt. Gox’s price variance
A concern separate from timely customer withdrawals which had recently commanded attention was the expansion of the so-called ‘Mt. Gox premium’.
For example, on 28th January, Mt. Gox customers were paying more than 25% more for bitcoins than customers on BTC-e, another BPI component exchange.
The issue of price dispersion across the many different bitcoin exchanges was part of CoinDesk’s original rationale behind the Bitcoin Price Index, and some ongoing dispersion is to be expected for reasons ranging from differences in bitcoin regulation across the globe to the overall maturity of the exchange market for bitcoins.
However, the price dispersion between two other BPI components, Bitstamp and BTC-e, has recently remained in the low single-digit percent range, raising concerns over whether bitcoin prices quoted on Gox were representative of the overall market.
Concerns over excessive price dispersion at Mt. Gox, however, have since subsided as the Gox premium compressed into single percentage digits since 28th January.
Customers' love-hate relationship with Mt. Gox
Complaints over withdrawal delays at Mt. Gox are nothing new, having dogged the exchange since the first-half of 2013, when Mt. Gox first ran afoul with US regulators after its failure to register as a money transmitter.
Throughout the first-half of 2013, Mt. Gox commanded a very high share of bitcoin trading volume, leaving many feeling that, in spite of its withdrawal issues, Mt. Gox was still a viable option given the available alternatives.
However, as the year progressed Mt. Gox’s market share in total bitcoin trading volume steadily eroded, and in late-2013 Mt. Gox was eclipsed as the number one Bitcoin exchange, first by BTC-China and then Bitstamp.
Mt. Gox’s persistent withdrawal problems
Reports of Mt. Gox customer withdrawal problems have been rising of late and these complaints have not fallen on deaf ears at CoinDesk.
CoinDesk has been working diligently to independently verify complaints. We recently ran an open poll about Mt. Gox to gather additional details from customers, and a number of Mt. Gox customers have shared their experiences with CoinDesk in confidence.
One recent high-profile example was a Mt. Gox customer who flew to Tokyo to protest outside Gox’s offices over withdrawal delays, alas to no avail.
Importance of timely customer withdrawals
The ability of exchange customers to obtain timely withdrawals is a criterion of the Bitcoin Price Index. Specifically, point 6 in the BPI criteria states:
“Banking and/or bitcoin transfers in or out of the exchange must be completed within seven business days, if deposit and withdrawal methods are not offered for various countries and/or currencies.”
Mt. Gox has been unable to consistently meet this criterion. Also of concern has been Mt. Gox’s failure to provide a sufficiently credible explanation for why the problem is occurring, or a detailed plan/timeline for when the problem of timely customer withdrawals will be resolved.
An exchange's ability to execute timely customer withdrawals is an important BPI criterion for several reasons.
If timely customer withdrawals are not possible then this could have an influence on the accuracy of the exchange’s price discovery mechanism. For example, customers of Mt. Gox were often thought to be trading bitcoins at rates beyond their value on other exchanges so that they could more easily transfer BTC out of the exchange. In recent days the reverse has occurred, with the 'Mt. Gox Premium' becoming a discount during certain periods.
Customer withdrawal delays may be a symptom of other serious problems at the exchange which are difficult to independently verify, such as internal technical issues, legal/regulatory inquiries, or the exchange's solvency.
CoinDesk has removed Mt. Gox from the calculation of the Bitcoin Price Index effective today at 16:00 GMT.
About the Bitcoin Price Index
The BPI is intended to serve as a standard retail price reference for industry participants and accounting professionals.
The CoinDesk BPI is a professionally curated index with a combination of quantitative and qualitative data points under consideration. Selective criteria such as price volatility, inconsistencies in processing withdrawals, and standard deviation from the mean all play a factor in exchange inclusion.
CoinDesk’s goal is to include all exchanges which meet the BPI criteria in the Price Index so that the Index provides the most accurate, representative real-time measure of bitcoin’s price.
Have any feedback on the BPI criteria? Are there other exchanges beyond Bitstamp and BTC-e which should be included? Please share your thoughts and opinions in the comments.
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