A Guide To Crypto Indices

There are thousands of cryptocurrencies in existence.[1] Unlike publicly listed stocks, these digital assets are traded on a large number of different exchanges, with no exchange having the same collection of cryptos.
With so many exchanges and cryptocurrencies out there, it can be difficult for traders to get a sense of what the digital currency market as a whole is doing. Fortunately, traders can leverage indices to better understand key variables like the market's total value and which segments are experiencing the greatest volatility.

What Is An Index?

In financial markets, an index is a way to track the performance of a group of assets. Indices typically are a group or basket of securities, derivatives, or other financial assets, including cryptocurrencies.

In the equities markets, a perfect example is the S&P 500 index, which is a benchmark group of 500 stocks.[3] Another example of a well-known market index is the Dow Jones Industrial Average, which is calculated using the usd values of the stocks of 30 major U.S. companies.[4]

What Are Crypto Indices?

Crypto indices are a basket of cryptos grouped together, usually by market capitalisation. Crypto indices almost always include the most popular tokens at the time, but there are also more specialised crypto indices that focus on specific niches in this ecosystem. These niches can include DeFi coins, ERC-20 or Ethereum (ETH) altcoins, stablecoins, memecoins, and many more.

How Can Crypto Indices Help?

Crypto indices give investors an easy way to get a snapshot of what's going on in the crypto markets. This allows crypto traders and researchers to save time from having to scour the entire market.

Additionally, crypto indices offer a way to invest in a diversified bundle of cryptocurrencies. While mutual funds and exchange-traded funds (ETFs) aren't popular in the crypto world yet, some consider investing in an index as the next best thing, helping traders reduce risk and diversify their holdings with a single investment.

Indices also aim to help make the crypto markets more accessible and improve liquidity. Mainstream investors know that investing in a stock index like the S&P 500 and Nasdaq over a long-time frame traditionally performs well. While crypto used to have a nebulous reputation, having established indices can help persuade non-crypto investors that this is a serious market.

5 Noteworthy Crypto Indices

While a number of crypto indices exist, not all of them are public. Some are private investment assets established by institutional investors, oftentimes requiring a substantial minimum investment requirement beforehand. However, the most popular and accessible crypto index is public and accessible to anyone.

1. The Bitwise 10 Large Cap Crypto Index

The most popular publicly traded cryptocurrency index fund is the Bitwise 10 Crypto Index Fund. This fund was launched in 2017 by Bitwise Asset Management and originally limited to accredited investors. However, the fund has since been made available to anyone over the over-the-counter markets.[14]

The Bitwise 10 Crypto Index Fund follows the ten largest cryptocurrencies by market capitalisation. There are a few other requirements, such as any specific crypto that needs to be traded on at least two exchanges.[14]

As of July 2022, The index's holdings include Bitcoin (BTC), Ethereum, Cardano, Solana, Polkadot, Avalanche, Polygon, Litecoin, Chainlink, and Uniswap. The fund is down 65.4% since 2022 began, although it's still up over 66.4% since inception.[14]

2. CCi30

Another popular crypto index is CCi30. Similar to Bitwise, CCi30 tracks the 30 largest cryptocurrencies by market cap, including Monero, Bitcoin Cash, and Ethereum Classic. It also excludes stablecoins.[8]

CCi30 was first set up in 2017, having been developed by a group of fund managers, mathematicians, and quantitative analysts. Besides including the most popular cryptos index, the CCi30 index methodology includes a number of other tokens, including Litecoin, Ripple (CRP), and Monero.[8]

3. CMC Crypto 200 Index

The CMC Crypto 200 Index (CMC200), which was announced in March 2019 by CoinMarketCap, was designed to track the largest 200 crypto assets by market capitalisation. As a heavily diversified index, constituent cryptos within this specific index don't need to have a lot of criteria. If a token meets the top 200 market cap size, then it's automatically included, except for stablecoins.[12]

4. DeFi Pulse Index

As the name suggests, the DeFi Pulse Index is a niche crypto index focused on blockchain projects in the decentralised financed (DeFi) ecosystem. Unlike other indices, the DeFi Pulse Index has much more strict criteria for which cryptos qualify for inclusion.[15]

The main criterion is that a token must be available on the Ethereum blockchain. Additionally, candidate cryptos must be associated with a DeFi protocol or Dapp. They also can't be considered a security.[15]

The DeFi Pulse Index includes 14 tokens, including popular decentralised exchanges (DEXs) like Uniswap and Sushi, as well as DeFi coins, including Aave, Compound, Yearn, and REN. [ref="15"]

5. NFT Index (NFTI)

With the rise of non-fungible tokens (NFTs) as a popular, albeit speculative asset class, it's not surprising that NFT-based indices have appeared. While it's impossible to get a snapshot of the entire NFT market, what indices can do is invest in blockchains that are responsible for enabling the rise of NFTs.

That's exactly what the NFT Index is attempting to do. The index includes eight tokens, such as Polygon (Matic), Enjin, Decentraland, Sand, Axie Infinity, Aavegotchi, Rarible, and Meme.[16]

Given the speculative nature of NFTs, the NFT Index has been one of the worst performing crypto indices on the market, down over 80% since 2022 began.[16]

Summary

The digital currency markets provide traders with a wide range of options, including thousands of digital assets from which to pick. For some, this can prove difficult, even overwhelming. Fortunately, traders can make things a bit easier by leveraging indices, which are basically just measures of the market.
By harnessing indices, traders can quickly obtain a status of the digital currency market, whether they are looking at the market as a whole or specific segments of it.

FXCM Research Team

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Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.

References

1

Retrieved 15 Sep 2020 https://coinmarketcap.com/all/views/all/

3

Retrieved 15 Sep 2020 https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview

4

Retrieved 15 Sep 2020 https://www.spglobal.com/spdji/en/indices/equity/dow-jones-industrial-average/#overview

8

Retrieved 15 Sep 2020 https://cci30.com/

12

Retrieved 15 Sep 2020 https://blog.coinmarketcap.com/2019/03/20/coinmarketcap-cryptocurrency-benchmark-indices-to-launch-on-nasdaq-bloomberg-and-thomson-reuters-today/

14

Retrieved 14 Jul 2022 https://s3.amazonaws.com/static.bitwiseinvestments.com/FactSheet/bitwise10/Bitwise-10-Crypto-Index-Fund-Fact-Sheet.pdf

15

Retrieved 14 Jul 2022 https://indexcoop.com/defi-pulse-index-dpi

16

Retrieved 14 Jul 2022 https://coinmarketcap.com/currencies/nft-index/

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