Choosing a suitable crypto index
When bitcoin made up 80% of the total value of the entire cryptocurrency market if bitcoin sneezed so did the whole market. But those of us who foresaw the potential of crypto outside bitcoin, and went on to build altcoin portfolios, needed a quick way to monitor our own holdings against the market average. This is even more relevant now that bitcoin represents under 50% of the total market value of the crypto universe.
Indices in the stock market are a great way of measuring whether a fund manager is outperforming the market. No one is going to pay a fund manager who is achieving what appears to be positive returns when in fact he is under performing the market. Indices are therefore a powerful tool for measuring performance.
In the cryptocurrency world indices are a relatively new phenomenon. As an investor it is important we are able to measure our own portfolio’s performance against the market. If you are an investor in the major cryptocurrencies you want to see how your own holding compares to the market average. On the other extreme, if you are a holder of a portfolio of what we like to call moonshots you want to see how your portfolio is performing compared to the market average in the small cryptocurrency sector.
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Let us explore what the options are for the crypto investor.
We will start with the indices which attempt to represent the larger end of the market.
The CoinDesk 20
This index is made up of 20 cryptocurrencies from the larger universe of cryptocurrencies which represent around 99% of the market by volume at eight of the largest exchanges. You can view index here.
Also known as the B10 index represents the performance of the top 10 largest cryptocurrencies in the market based on market capitalization. . It is widely considered the benchmark cryptocurrency index for the crypto market. You can view the index here.
Crypto200 Index by Solactive
Known as the CMC200 Index it measures the performance of the top 200 cryptocurrencies by market capitalization traded in USD. You can view the index here. There is also the Crypto200 ex BTC Index which you can view here.
This is a rules based index designed to objectively measure the overall growth of the blockchain sector. It tracks the 30 largest cryptocurrencies by market capitalization, excluding stablecoins. You can view the index here.
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There are fewer options if you are looking for indices to measure the performance of mid cap cryptocurrencies. In fact the first two on our list could loosely be described as large cap cryptos outside the top 10.
BitWise 20 Mid Cap Crypto Index
Tracks the total return of the 20 largest crypto assets that fall outside the Bitwise 10 Large Cap Crypto Index, as measured and weighted by free-float market capitalization. You can view the index here.
MVIS CryptoCompare Digital Assets 100 Mid-Cap Index
This is a market cap weighted index which tracks the performance of the 30 mid size digital assets in the MVIS CryptoCompare Digital Assets 100 Index. You can view the index here.
The Bloomberg Galaxy Crypto Index
Designed to measure the performance of the largest cryptocurrencies traded in USD. You can view the index here.
Now for the indices which aim to reflect the performance at the smaller end of the market.
Bitwise 70 Small Cap Crypto Index
BITW70 tracks the total return of the 70 largest crypto assets that fall outside of the Bitwise 10 Large Cap Crypto Index weighted by free-float market capitalization. You can view the index here.
Weiss Small-Cap Cryptocurrency Index
This consists of 36 small cap cryptocurrencies. It is probably the nearest to the true definition of a small cap index except it doesn’t have a very high threshold for volume. You can view the index here.
MVIS CryptoCompare Digital Assets 100 Small-Cap Index
Tracks the performance of the 50 smallest digital assets in the MVIS CryptoCompare Digital Assets 100 Index. It is weighted by market cap. Its major drawback is its definition of ‘small’. Many of the cryptocurrencies have a value of over $1 billion which we wouldn’t classify as small. You can view the index here.
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Although the index phenomenon is a relatively new one in crypto, there are a few indices that have built a good reputation and are a reliable indicator of growth in the larger cryptocurrencies. Probably the best two indices worth using are CoinDesk 20 and CMC200 Index. The two mid cap indices are really a measure of the performance of an assortment of large cap cryptocurrencies outside of the top 10, this isn’t a great representation of the performance of the medium sized cryptocurrencies with a market cap below $5 billion.
In terms of gauging the performance of a small cap portfolio we would suggest Weiss Small-Cap Cryptocurrency Index.
It is very important that we take a leaf out of the fund manager’s handbook and make ourselves accountable for our own performance. The best way to do this is to measure our performance against a standard benchmark. Hopefully the above will provide you with the necessary resources to keep you on your toes and of course most importantly, kicking your own ass!
Not Financial Advice
This article does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment. The article should be treated as supplementary information to add to your existing knowledge.