ECB Says It’s Ramping Up Crypto Surveillance to Include Off-Chain Data

The European Central Bank (ECB) says the “central banking community” will refine its monitoring of cryptocurrency transactions, both on- and off-chain.

In an Aug. 7 report entitled “Understanding the crypto-asset phenomenon, its risks and measurement issues,” the ECB argues that “closing the data gaps associated with crypto-assets” continues to pose a significant challenge for regulators and financial institutions.

“Closing data gaps” for crypto asset monitoring

The report argues that the risks and spillover effects of crypto assets to the real economy, depends on the extent that the two spheres are interconnected. It advises that the ECB should, therefore, prolong and refine its qualitative and quantitative analysis of the new asset class. 

Yet while the public nature of distributed ledger technology-based crypto asset networks broadly provides transparency, the report notes, the decentralized and patchily-regulated nature of crypto asset-related activities complicate efforts to organize systematic data collection efforts. 

This is in part due to the absence of hard transaction data covering both on- and off-chain activity, resulting in only a partial view of the crypto asset market.

On-chain transactions for selected crypto assets as of April 2019. 

Sources: Bitinfocharts, Cryptocompare and ECB calculations, via the ECB

A summons to the central banking community

As the report outlines, initiatives to refine crypto asset data collection and analysis have been undertaken by entities such as the Irving Fisher Committee on Central Banking Statistics and expert groups investigating the statistical classification of crypto assets in the System of National Accounts.

While this latter initiative may have significant implications for measuring nations’ GDP and other indicators, the ECB notes, statistical classification for crypto assets remains a complex task, given that their very characteristic is not to represent a financial claim on, or a liability of, any identifiable entity.

The ECB states that those seeking reliable on- and off-chain data must further overcome the difficulty of retrieving public data on market segments that remain off-radar for public authorities. 

They must also contend with “relatively illiquid crypto trading platforms that may be affected by wash trading” and take into account the “lack of consistency in the methodology and conventions used by institutionalised exchanges and commercial data providers.”

In its conclusion, the ECB pledges to continue to analyze both on-chain and layered protocol transactions and to focus on harmonizing and enriching metadata for off-chain transactions, as well as developing best practices for crypto asset indicators.

This May, an ECB report had conversely argued that cryptocurrencies do not have implications for monetary policy nor factor into the real economy.