Behind the scenes of the Kryptoasset check model from Bloomberg

Behind the scenes of the Kryptoasset check model from Bloomberg

An insight into the crypto-asset check model from Bloomberg

The crypto assistant develops rapidly. The regulation and market maturity unfolded draw institutional investment capital in crypto. And many traditional institutions that investigate this area want the same reliability and transparency that you have with data and analyzes in more traditional asset classes such as stocks or fixed -income securities in order to be able to make well -founded investment decisions.

on 06/09/2022 the Bloomberg Terminal has taken an important step to meet the demand of institutional investors by expanding the cover upwards 50 Kryptoassets . But their standard for the recording was not as easy as the selection of assets with the largest market capitalization or another individual key figure. There are many factors and a variety of data points that have to be taken into account.

We spoke to Alex Wenham, Digital Assets Product and Strategy Lead near Bloomberg, to get an insight into the company's approach to this quickly developing area.

Wenham and his team began this process with a view to the needs of institutional customers. But there are different types of institutions and they do not all have the exact needs. In addition to taking into account the needs of crypto-native operations, niche hedge funds, market makers or family offices, Bloomberg focused on supporting traditional buyers and sellers who want to develop more familiarity and comfort with the cryptom market.

filter after custody and compliance

in 2021, at the beginning of this review process, more than 10,000 projects were traded on hundreds of different stock exchanges. In view of the large number of assets, the team begins to maintain a database of the top 1000 crypto assets after market capitalization. The next goal of the team was to filter this number to a list of assets that could largely meet the needs of traditional institutional customers.

The most important of these requirements were fully compliant crypto custody. These customers need a custodian bank that follows the same regulatory parameters that are used for the traditional custody of assets.

Wenham and his team excluded all assets that did not have this custody standard. This filter made it possible to filter the pool of 1,000 digital assets under 200.

Next, Wenham's team assessed the quality of all trading platforms that offer these assets. There are about 550 exchanges that fall into this category, so Bloomberg has received a partnership Research on digital assets to check the growing list.

High -quality liquidity is another must when it comes to institutional trade. Every company that moves large capital amounts must be able to trust that it can act with an asset. Wenham explains: "If a asset is only traded on a high -quality platform and this platform fails, some institutions have no way out." For this reason, the next part of the review of digital assets from Bloomberg requires that the asset has adequate liquidity of at least two high -quality (tested) trading places.

market capitalization and sales consistency

The previous step filters the checked digital assets to about 150, but Bloomberg's review process does not stop here. Wenham's team then classifies every asset after market capitalization, based on the circulating offer and the consistency of sales.

Wenham points out that the market capitalization cannot be measured exactly without correcting the circulation of the offer. "Realistically, you have to understand the market capitalization of easily available tokens," he explains.

But market capitalization alone does not say the whole story - since it often changes in volatile cryptoma markets. So the team uses a second measure to compensate for it. As soon as you have an exact market capitalization, take into account the sales consistency in your ranking process.

Wenham says: "We measure the BTC turnover by first calculating the entire traded volume (converted in USD) across all trading pairs of reputable stock exchanges and dividing it through the overall market capitalization. If the ratio of volume to market capitalization is high in one day, the asset would have a low consistency."

a developing process

Wenham notes that the efforts to refine the process will probably not end here. He admits that crypto is unique, as is many of his reference data, and that changes are one of the few reliable constants in the asset class. But the financial market participants are used to adapting to changes.

Another example that he points out are tools and models for liquidity analysis that have developed to meet the need for speed, since the markets for fixed -income securities have become more and more electronic in recent years. They are a necessary part of the industry and help to understand institutional customers to what extent they would move the market if they had to liquidate a position quickly.

And while "you simply cannot put a fixed -interest model in crypto", Wenham clarifies, "you can take a model that works and optimize it to make it more relevant to this asset class."

Wenham and his Bloomberg colleagues faced the challenge of developing a model for curating crypto assets for the company's institutional customer base in 2021. Although they have developed a coherent methodology, it is clear that their work remains an iterative process. You will further develop the review standards, while the market for digital assets will continue to come together with the traditional market and its high -ranking institutions.

This content is sponsored by Bloomberg

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The article Behind the Scenes of Bloomberg’s Crypto Asset Vetting Model is not a financial advice.