European Central Bank (ECB) report on boosting the monitoring of on and off-chain Cryptocurrency

The ECB issued a new report on the 7th of August, named ″Understanding the crypto-asset phenomenon, its risks and measurement issues″. The report concerns closing data gaps and confronting challenges related to crypto-assets, which continue to pose obstacles for financial institutions and payment services.

The report states that “spillover effects may also be transmitted to the real economy [from the cryptocurrency market],” which depend on the interaction between the two domains. Therefore, ECB mentions that they should provide a more granular analysis of the new assets class.

Although the distributed ledger technology (DLT)-based crypto asset networks are characterized by transparency, ECB’s view is that crypto-asset related activities are of an unevenly regulated nature. Thus, they disable the organization of systematic data collection.

That is mainly a result of the lack of hard transaction data to cover both on and off-chain activity. Consequently, there is only a partial view of the crypto-asset market.

Based on the report, initiatives have already been undertaken to revisit crypto asset data collection. The Irving Fisher Committee on Central Banking Statistics and ″expert groups″ aim to investigate the statistical classification of crypto-assets in the System of National Accounts.

The ECB further advises that those looking for reliable on and off-chain data should deal with the complications of retrieving public data from market sections that are off-radar. The parties involved, should, therefore, take into account that “relatively illiquid crypto trading platforms that may be affected by wash trading”. Also, they need to bear in mind that the crypto asset market does not have the consistency in the “methodology and conventions used by institutionalized exchanges and commercial data providers.”

Concluding, the ECB stated that it will strive to overcome the challenges in analysing data regarding “on-chain and layered protocol transactions”, as well as, increase the ″availability and transparency″ of the reported data regarding off-chain transactions by supplementing the metadata and developing best practices for indicators on crypto assets.