Liquidity is an important factor in choosing an asset to buy. It is one of the four principal metrics used by CoinGeko to determine the health of a coin. https://www.coingecko.com/en/price_charts/bitcoinz/usd.
It is well understood in the field of economics that an asset is more desirable if the difference between the best bid and the best ask on an order book for a given size transaction is small. The difference between the two is called the “Spread” and is usually expressed as a percentage.
See, for instance Yakov Amihud and Haim Mendelson, “Asset Pricing and the Bid-Ask Spread.” Journal of Financial Economics 17, 1986.
It may therefore be argued the desirability of BitcoinZ is not as great as it could be due to the large spread between the bid and ask on the order book. A big spread makes inter-currency gateways based on price quotes expensive to operate.
A large spread is synonymous with an illiquid market. A small spread is synonymous with a liquid market.
Our principal liquid market is in BTC Our principal exchanges quote our price in whole units of Satoshis. This is a problem since the minimum spread between the bid and ask price is 2.5%. This is very high compared to other assets. For comparison, the minimum bid/ask spread of USD/GBP is 0.007%. The price step for BTCz is 353x that of GBP. This substantially inhibits adoption of BTCz.
Another area BicoinZ could excel if it had the liquidity and small spread would be as an inter-exchange transfer currency. Imagine you had BTC on an exchange that you want to transfer to another exchange. If the split were low with BTCz, it would be possible to economically exchange to BTCz, transfer funds to another exchange, then exchange back, thereby avoiding the high fees associated with sending Bitcoin. Currently, the split between buy and sell is too high to do this efficiently.
Mission Statement or Vision
Once our price is up to 1000 satoshis, this problem will cease to exist. Meanwhile, we need to make BTCz as useful as possible. Both as an inter-exchange vehicle, and as a vehicle for commerce. Our price quotes versus other currencies need to be precise, and have a narrow spread. Increasing precision and thereby increasing liquidity adds to the empirical data validating the value of BTCz. We need to make exchanges into and out of BTCz cheaper to incentivise investors as per established economic theory.
Objectives to be achieved
When we have a currency pair to USD, or another instrument of lower value, no change is necessary. When we we have a pair with Bitcoin, which is our principal market, due to the relatively high value of each BTC token, we need 10 decimals to achieve high precision and low spread. We should aim to improve the liquidity metric on coin comparison sites such as coingecko and make BTCz more useful and cheaper to trade by increasing the decimal precision of BTCz quotes when paired to BTC.
We should ask exchanges when first listing us to list versus USD at their normal precision. They should list us versus BTC at 10 digits of precision. We should as a matter of community policy, request exchanges increase our precision to 10 digits on the BTC pair where possible.
BitcoinZ should benefit in the longer term by increased adoption, greater growth and ultimately higher prices.
Risks and ways to address them
Increasing the precision can potentially cause confusion since we already have many leading zeros. Users will need to be aware of the precision one exchange versus another is using. Typically, exchanges put decimals after the satoshi unit in subscript, or another font effect, in price quotes. This tends to eliminate the problem.
Another argument made is that if we have more decimal places, the bottom may seem to be lower than with fewer decimal places. The counter argument would be that other currencies don’t just keep sliding due to pricing precision, but live and die on their usefulness. We’re not looking down. We are looking up!
A basic plan of work (timeline and key milestones)
After this vote, the current community policy will be established. Exchanges need to be informed of community decision where appropriate.
Cost estimates and funding sources
8 decimal places are to the nearest Satoshi and at current precision, making the minimum difference between the buy and sell price 2.5%. 9 decimal places alleviate the problem somewhat, but are still a long way from the spreads associated with currency market industry norm. 10 decimal places put us near currency market norms and are often supported by crypto exchanges. Should 10 not win, then the total votes for 10 should add to 9, as a vote for 10 is a vote for increased precision.
- 8 Decimal (2.5% bid-ask spread)
- 9 Decimal (0.25% bid-ask spread)
- 10 Decimal (0.025% bid-ask spread)