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 2019
4089
Website https://www.coinbase.com
Whitepaper available here
Developer Company Coinbase
Inception Date 1st Jan 2015
Starting Value 100 points
Number Constituents 12, not fixed
Constituents BTC, ETH, BCH, LTC, ZEC, ETC, ZRX, BAT, GNT, CVC, LOOM, DNT
Weighting Market Cap in USD
Price Calculation Last price of the crypto asset from the Coinbase order book weighted by trading volume over the last 120 hours. Circulating token supply from CoinMarketCap.
Rebalancing No
Exclusion Rules Only tokens that are allowed to trade in the US and that comply with the Coinbase Digital Asset Framework.
Special Some index constituents have a small market capitalization.
Usage Coinbase Index Fund

4. Bitwise 10

Points 10th Jan 2019
4799
Website https://www.bitwiseinvestments.com
Whitepaper available here
Developer Company Bitwise
Inception Date 1st Jan 2017
Starting Value 964 points
Number Constituents 10, fixed
Constituents BTC, XRP, ETH, BCH, EOS, LTC, XLM, DASH, XMR, ZEC
Weighting Market Cap in USD
Price Calculation Weighted price of the crypto asset from the order books of the selected exchanges. Own calculation of circulating token supply.
Rebalancing Monthly
Exclusion Rules No 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.
Special Own 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.
Usage Bitwise10 Private Index Fund, Bitwise10 Index Offshore Fund, Abra App

3. CRIX

Points 10th Jan 2019
5917
Website http://www.thecrix.de
Whitepaper available here
Developer Humboldt-Universität zu Berlin, Prof. Dr. Karl Wolfgang Härdle, Simon Trimborn, Prof. Hermann Elendner et al.
Inception Date 28th Jul 2014
Starting Value 1000 points
Number Constituents 30, not fixed
Constituents BTC, 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
Weighting Market Cap in USD
Price Calculation Laspeyres Formula, Data from CoinMarketCap.
Rebalancing Every 3 months
Exclusion Rules Liquidity 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.
Special The 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.
Usage Research papers, see http://thecrix.de/references

2. CCI30

Points 10th Jan 2019
6743
Website https://www.cci30.com/
Whitepaper available here
Developer Prof. Igor Rivin, Carlo Scevola, Robert Davis
Inception Date 1st Jan 2017
Starting Value 100 points
Number Constituents 30, fixed
Constituents BTC, 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
Weighting Square root of the market capitalization in USD, thus low distribution over the big tokens.
Price Calculation Exponentially weighted average of the market capitalization. Data from CoinMarketCap.
Rebalancing Quarterly rebalancing of index constituents. Monthly weighting of index constituents.
Exclusion Rules No stable coins.
Special Almost no exclusion rules; α damping factor to limit outlier values.
Usage No

1. F5 Crypto Index

Points 10th Jan 2019
9683
Website https://www.f5crypto.com/
Whitepaper available here
Developer Prof. Hermann Elender (Humboldt-Universität zu Berlin)
Inception Date 1st Jan 2017
Starting Value 1000 points
Number Constituents 12, not fixed
Constituents BTC, ETH, XRP, BCH, EOS, DASH, XLM, LTC, ADA, MIOTA, TRON, BNB
Weighting Selection of index constituents by market capitalization, afterwards equal weighting of constituents combined with a secret momentum factor.
Price Calculation Exponentially weighted average of the market capitalization. Data from CoinMarketCap and API connections to multiple exchanges.
Rebalancing Quarterly
Exclusion Rules No stable coins, no non-multi-sig compatible tokens, no fraud schemes, no illiquid tokens.
Special Smart 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.
Usage Index-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.