Indices are a construct that’s been in the financial world for ages. Many people are already acquainted with stock indices that track the performance of the stock market as accurately as possible.
Essentially, an index is a function that indicates the price value of a security in that security’s market.
Cryptocurrency indices are not much different from stock indices – they keep track of movements in blockchain and crypto as well as gauge the general crypto market performance. With cryptocurrencies becoming such a rage, many investors are now gravitating towards them.
And thanks to crypto indices, professional investors can know where to put their money, and newbie traders can get a reliable exposure to the crypto asset class.
Let’s take a look at the most dominant cryptocurrency indices today.
CCi30
Launched in January 2017, the CCi30 is one of the oldest indexes. Unlike most crypto indexes, CCi30 only tracks the 30 largest cryptos by market capitalization. The team behind it is a combination of tech, mathematics, and economics gurus – including Igor Ravin (Professor of Mathematics at Temple University), Carlo Scevola (Economist and president of CS&P, a Swiss fiduciary company) and IT expert Robert Davis.
By focusing on the 30 largest cryptos, CCi30 assesses the overall growth and movement in the blockchain and crypto space. The index is being used by passive investors (investors who buy a security for holding in the long-term) to take part in crypto trading.
Bloomberg Galaxy Crypto Index
The Bloomberg Galaxy Crypto Index (BCGI) is another crypto index – but only geared at the largest cryptocurrencies traded in the US dollar. BCGI was launched in 2018 with a starting value of 1000. The BCGI index is owned by Bloomberg in a branding partnership with Galaxy Digital Capital Management.
According to the BCGI website, the index operates under four guiding principles:
- Data integrity. Crypto pricing sources are selected based on their liquidity and reliability and after a rigorous risk and suitability assessment. As well, cryptos must meet the minimum threshold for daily traded USD value.
- Diversification. No single crypto value can contribute more than 30% or below 1% of the market cap of the index.
- Representative. The index’s goal is to provide a reference tool for the broader cryptocurrency market.
- Continuity. The index seeks to be responsive to the ever-changing, dynamic nature of the market, while still preserving the character of the index over time.
The BCGI index selects cryptocurrencies on quite stringent criteria, including the following:
- Trades in USD
- A minimum of two pricing sources that meet Bloomberg’s pricing criteria
- A minimum of 30-day median value traded at $2 million on those two pricing sources, or another eligible source
- A free-floating value – one that is not pegged on any asset, even a digital asset
- Be able to meet the above criteria for three consecutive months
- Hard forks are evaluated on the same gamut of eligibility requirements as established cryptocurrencies
- Twelve is the maximum number of cryptocurrencies that can be included, with the limitation being based on the highest performing – by market cap.
- Any cryptocurrency to be included in the index needs to follow the above eligibility requirements for three consecutive months.
The Coinbase Index
Coinbase Index is an offshoot of the Coinbase crypto exchange giant. The index only tracks the performance of digital assets listed on the exchange. The index determines its overall value by weighing the value of crypto assets based on its market cap.
Coinbase index also keeps track of new cryptos introduced – or the supply of such cryptos.
The index was introduced in March 2018, with several improvements added since then.
The index has the advantage of easy access to price points – thanks to its Coinbase platform. Coinbase Index has given rise to the Coinbase Index fund, which gives passive investors exposure to all assets listed on the exchange. The fund is continuously rebalanced to include new assets that get listed on the exchange platform.
Huobi Index
The birth of Huobi Index was as a result of the need to simplify the trading process for investors on the Huobi exchange platform. The index, also known as the HB10 index, was launched in May 2018, with a starting value of 1000.
The index’s value is weighed with the Pasche weighted composite price index. The average daily volume of previous quarters is the main measurement that determines the samples that will be selected. Some of the current constituents at the index include Bitcoin, Ripple, Ether, EOS, Litecoin, Ethereum Classic, Ontology, IOST, and the native token for the Huobi platform.
The percentage of individual constituents moves in real-time, allowing investors to track it as such. HB10 uses Tether – as opposed to the US dollar, since the former, being a digital currency, better reflects the actual volume of transactions taking place.
Bitmain Big 10 Index
Bitmain index (BLC 10) was launched by Bitmain – one of the largest companies in the world that produce crypto mining hardware. The index tracks the top ten largest and most liquid digital assets – denominated in USD, in the crypto market. These top ten cryptos are selected out of a total of 17 constituents whose data is aggregated from reputable crypto exchanges. These crypto exchanges must have high asset liquidity, be regulation-compliant, transparent, and stable.
Some of the exchanges the index uses are as follows: Bitfinex, Gemini, Huobi, Itbit, Bitstamp, Binance, Poloniex, Kraken, and Bittrex.
BLC 10 covers over 90% of the total market capitalization of the cryptocurrencies, with a diversified mix of decentralized as well as private coins. Investors can check real-time updates of price values – but they can also rely on the reference price that’s published daily at 10:00 am, Hong Kong time.
Conclusion
Indices are nothing new in finance. They help investors make more informed investment choices and to better study market sentiment. Also, investors can diversify and rebalance their portfolios as and when appropriate, to avoid incurring losses by putting all their eggs in the same basket.
With cryptocurrencies making such a splash, it only makes sense to have crypto indices that will make the investing experience much more worthwhile.