Gemini Trading, the bitcoin and ethereum exchange founded by Tyler and Cameron Winklevoss, is set to begin hosting daily bitcoin auctions.
While such auctions are commonplace as a way to determine more accurate closing prices for the New York Stock Exchange or Nasdaq, Gemini is positioning the auction as more than a first for its exchange.
Tyler Winklevoss told CoinDesk:
"It's the first ever end-of-day auction on a bitcoin exchange. It's a pretty standard feature on traditional exchanges that didn't exist on a bitcoin exchange until now."
The launch represents the latest effort by the Winklevoss brothers to create investment mechanisms for mainstream investors.
Since 2014, the Winklevoss Bitcoin Trust has been working to open the first bitcoin exchange traded fund (ETF) on a major stock exchange. In June, after almost three years, the Trust filed to move their application from Nasdaq to Bats, a move that accelerated progress even if the final decision could still be months away.
How it works
Beginning at 5pm ET, Gemini will begin accepting two-sided bids in BTC/USD for the next day’s auction, ending at 4pm. Gemini expects to add additional trading pairs at a later date.
By concentrating liquidity at a single moment each day, Winklevoss says the auction will increase liquidity while minimizing “slippage” thats results from large investors who affect the price with their purchases.
After 22 hours and 50 minutes of bidding, Gemini will begin publishing “indicative auction prices” every minute, giving bidders a chance to pull out their bids until 3:59pm ET, after which the final bid closes.
The closing auction price is determined by finding the price, at which the greatest aggregate buy demand and sell demand can be fulfilled.
In addition to giving investors an official closing price to report to their banks and accounts, the auction is intended to make it easier for buyers and sellers to find each other, according to Benjamin Small, head of Gemini’s market structure.
"A benefit for institutional traders is that an auction attracts counterparties during a particular time,” Small told CoinDesk. “By focusing on a specific moment of time, the opportunities to interact are increased significantly."
Pricing bitcoin
The auction set-up builds on the Winkdex, a bitcoin index that draws its data from the top three bitcoin exchanges by trade volume.
In interview, Small pointed to the index as a complimentary tool for bitcoin investors, whereas the auction helps serve to provide insight into how investors are buying and selling bitcoin during specific periods.
Small concluded:
"The Winkdex and other indexes are based on trades that have occurred, a blended rate of history. The auction price is based on the orders at a set time. It optimizes the amount of trading."
Image of auction paddle via Shutterstock