The Top 5 Scientific Cryptocurrency Indices

A sensible strategy for investors looking for stable returns is passive investing in indices. A crypto index maps a portfolio of crypto assets, such as Bitcoin, Ethereum or Cardano, with the aim of covering the crypto market as comprehensively as possible.

What is the current state of crypto indices?

Currently a very small proportion of crypto indices are suitable for financial products in practice.

Broadly speaking, crypto indices can be divided into three camps:

1. Price indices: These set the average price of a cryptocurrency across multiple exchanges. They are used to determine a robust price for a specific cryptocurrency. Based on this, financial products such as a Bitcoin future contract can be created reliably. Examples are the Gemini Bitcoin Index (serves the CBOE Bitcoin Futures), the BitMEX Index or the CoinDesk Price Index. Price indices are not suitable for diversified investing.

2. Market cap indices: Most crypto indices base their performance on the weighted market capitalization (price * number of tokens in circulation) of a certain number of cryptocurrencies. Often the top 10, 20 or 30 of CoinMarketCap are displayed. The amount and choice of index constituents is often poorly justified. Furthermore, there are restrictions on security and tradability that should be considered, especially for cryptocurrencies. This type of index is better suited to private investors than for professional ones. Known indices according to market capitalization are the CDX Index, the BITA10 Index or the BitTwenty Index.

3. Scientific indices: Less than a dozen relevant indices have so far devoted themselves to this topic from a financial economics or a statistical point of view. The approach of determining an index beyond mere market capitalization can be described as conventional or scientific, however this approach lacks sophistication. Weighting rules, liquidity rules, exclusion rules and crypto-specific characteristics are relevant. In addition, state-of-the-art research results should be included.

Let’s move on to look at the top 5 scientific crypto indices.

The top 5 scientific crypto indices

The ranking is based on the performance of indices from the 1st of January 2017 to the 10th of January 2019.

Go ahead and click on the graphic below to view our graphs in more detail.

All indices have been standardized to 1000 points on the 1st of January 2017 to ensure comparability.

5. Coinbase Index

Points 10th Jan 20194089
Websitehttps://www.coinbase.com
Whitepaperavailable here
DeveloperCompany Coinbase
Inception Date1st Jan 2015
Starting Value100 points
Number Constituents12, not fixed
ConstituentsBTC, ETH, BCH, LTC, ZEC, ETC, ZRX, BAT, GNT, CVC, LOOM, DNT
WeightingMarket Cap in USD
Price CalculationLast price of the crypto asset from the Coinbase order book weighted by trading volume over the last 120 hours. Circulating token supply from CoinMarketCap.
RebalancingNo
Exclusion RulesOnly tokens that are allowed to trade in the US and that comply with the Coinbase Digital Asset Framework.
SpecialSome index constituents have a small market capitalization.
UsageCoinbase Index Fund

4. Bitwise 10

Points 10th Jan 20194799
Websitehttps://www.bitwiseinvestments.com
Whitepaperavailable here
DeveloperCompany Bitwise
Inception Date1st Jan 2017
Starting Value964 points
Number Constituents10, fixed
ConstituentsBTC, XRP, ETH, BCH, EOS, LTC, XLM, DASH, XMR, ZEC
WeightingMarket Cap in USD
Price CalculationWeighted price of the crypto asset from the order books of the selected exchanges. Own calculation of circulating token supply.
RebalancingMonthly
Exclusion RulesNo stable coins, tokens must be tradable on at least 2 exchanges, no more than 90% of the trading volume on a single stock exchange within 30 days, offline storage ability, no 51% attacks possible, at least 10% of the tokens in circulation must be traded within 30 days.
SpecialOwn calculation of the tokens in circulation. Tokens that are pre-mined, held by a foundation or otherwise blocked are adjusted for market capitalization. Details determined by Bitwise Committee.
UsageBitwise10 Private Index Fund, Bitwise10 Index Offshore Fund, Abra App

3. CRIX

Points 10th Jan 20195917
Websitehttp://www.thecrix.de
Whitepaperavailable here
DeveloperHumboldt-Universität zu Berlin, Prof. Dr. Karl Wolfgang Härdle, Simon Trimborn, Prof. Hermann Elendner et al.
Inception Date28th Jul 2014
Starting Value1000 points
Number Constituents30, not fixed
ConstituentsBTC, XRP, ETH, EOS, BCH, USDT, TRX, ADA, XLM, LTC, NEO, XEM, BNB, MIOTA, XMR, DASH, DOGE, ZEC, ETC, ONT, VET, ZRX, MKR, BTG, LSK, XTZ, OMG, BCN, DCR, OKB
WeightingMarket Cap in USD
Price CalculationLaspeyres Formula, Data from CoinMarketCap.
RebalancingEvery 3 months
Exclusion RulesLiquidity rules. The average daily trading volume of a token in the index must be greater than the 0.25 percentile of the average trading volume of all tokens over the last period.
SpecialThe CRIX has an extension called VCRIX, which takes the volatility into account. The CRIX is the world’s first scientific crypto index created by a university.
UsageResearch papers, see http://thecrix.de/references

2. CCI30

Points 10th Jan 20196473
Websitehttps://www.cci30.com/
Whitepaperavailable here
DeveloperProf. Igor Rivin, Carlo Scevola, Robert Davis
Inception Date1st Jan 2017
Starting Value100 points
Number Constituents30, fixed
ConstituentsBTC, XRP, ETH, BCH, EOS, XLM, LTC, TRON, BSV, ADA, MIOTA, BNB, XMR, DASH, NEM, NEO, ETC, MKR, ZEC, WAVES, XTZ, DOGE, VET, BTG, ONT, QTUM, ZIL, OMG, ZRX, BAT
WeightingSquare root of the market capitalization in USD, thus low distribution over the big tokens.
Price CalculationExponentially weighted average of the market capitalization. Data from CoinMarketCap.
RebalancingQuarterly rebalancing of index constituents. Monthly weighting of index constituents.
Exclusion RulesNo stable coins.
SpecialAlmost no exclusion rules; α damping factor to limit outlier values.
UsageNo

1. F5 Crypto Index

Points 10th Jan 20199683
Websitehttps://www.f5crypto.com/
Whitepaperavailable here
DeveloperProf. Hermann Elender (Humboldt-Universität zu Berlin)
Inception Date1st Jan 2017
Starting Value1000 points
Number Constituents12, not fixed
ConstituentsBTC, ETH, XRP, BCH, EOS, DASH, XLM, LTC, ADA, MIOTA, TRON, BNB
WeightingSelection of index constituents by market capitalization, afterwards equal weighting of constituents combined with a secret momentum factor.
Price CalculationExponentially weighted average of the market capitalization. Data from CoinMarketCap and API connections to multiple exchanges.
RebalancingQuarterly
Exclusion RulesNo stable coins, no non-multi-sig compatible tokens, no fraud schemes, no illiquid tokens.
SpecialSmart rebalancing algorithm that minimizes trading activity but keeps it close to target weights. First time that the highly relevant momentum factor of cryptocurrencies is included in an index.* Practical extension of the CRIX index.
UsageIndex-certificate / linked-note of Bank Frick

Most of the indices in the crypto market are weighted according to their market capitalization. Scientific indices are comparatively rare in this space. They expand the previous, mostly simple indices, via well-thought-out methods and academic findings.

Historically the F5 Crypto Index outperformed its fellow competitors from the top 5. Its highly innovative approach with a combination of weighting by market capitalization, equal weighting and momentum factor not only covers the overall market performance, but also outperforms the alternative scientific crypto indices.

* https://www.nber.org/papers/w24877

Contact: florian [at] f5crypto com

Florian Döhnert is a managing director at F5 Crypto Capital GmbH. The views and opinions expressed by Florian are solely his own and do not necessarily reflect those of F5 Crypto Capital GmbH. This piece is for informational purposes only and should not be relied upon for investment decisions.

The author may hold long or short positions in the securities discussed.

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