Beginning next week, TradeBlock’s XBX index will include OKCoin USD and no longer include BTC-e and BTCChina. The change will officially take place as of March 1, 2015 at 4:00:00 PM EST.

This update is in line with our ongoing commitment to make XBX appropriately represent the growth of the institutional digital currency landscape. In particular, this change is driven by:

Shifting liquidity trends

Market price dynamics / divergences

Increasing regulatory clarity

Institutional trading activity

Shifting Liquidity

The global bitcoin exchange landscape has seen a continual shift over the past twelve months. Increasing activity at US-based exchanges and the introduction of leverage have become important drivers of trading volume. In turn, that has also generally led to decreasing market share at venues that offer neither of those benefits.

In particular, BTC-e has seen its share of the XBT / USD market slide dramatically since the beginning of 2014. While absolute volume at the stalwart exchange remains solid, institutional traders have largely replaced it as a source of liquidity.

Conversely, BTCChina’s total reported volume has remained strong – regularly over 100K XBT per day – but there are a series of factors that have depleted its utility as a price reference. In particular, the lack of fees to trade at the exchange leads to absolute volume figures that are not directly comparable to the rest of the market. The XBX algorithm has always discounted volume from no-fee exchanges, but the impact of those venues on institutional liquidity has waned.

OKCoin’s XBT / USD exchange has continued to perform strongly since its November 2014 launch. In addition to posting significant market share, OKC has also garnered volume from many institutional clients who have realized real, significant liquidity when executing there.

Market Price Dynamics

Prices at BTC-e and BTCChina have also notably diverged from the remainder of the XBX cohort, as shown in the graph below. While price divergence is by no means sole reason to remove an exchange, it further highlights the lack of efficient trading activity between these and XBX’s other constituent exchanges.

The price divergence also means the XBX algorithm is discounting these divergent exchanges, regardless of formal inclusion or not.

Looking Ahead

We expect to see multiple US-based companies vying for greater market share throughout the remainder of 2015. Existing exchanges not yet included in XBX have grown steadily over the past 3-6 months (notably Coinsetter, Buttercoin, and, most recently, Coinbase). Moreover, the upcoming launch of the Gemini exchange and addition of fees on the Coinbase exchange will offer dynamics that have yet to be seen. We expect one or more of these US players to achieve significant liquidity, garner notable institutional participation, and ultimately qualify for index inclusion in the coming months.