Opportunity for the institutional investors to put their money to work in digital assets has come a long way in the past couple of years. As the regulatory frameworks for exchanges and cryptocurrency become clearer, these big-money investors looking to get regulated exposure to digital assets are likely to turn to the growing number of regulated crypto products such as ETNs and ETFs, investment trusts & ETCs. And we all know too well, how these institutional investors have lifted the crypto market to the moon, in the last few months.
One of the most popular tradeable instruments in legacy financial systems are the index options, which track the broader market (like the S&P 500). With the growing sophistication in the crypto market — in terms of both market participants and tradable instruments, index trading has gained a lot of traction recently. However, these novel indices are still simplistic in nature —using the same construction methodology and containing similar assets exposure with almost identical allocations.
The nascent crypto industry can take a page from traditional finance’s playbook, which has explored the index construction space extensively and can provide valuable insight to digital assets space, on how to enhance the crypto index. For now, most of the crypto indices are utilizing the market-cap-weighted methodology as the dominant index construction choice. Although easier to construct & maintain, this approach has a drawback in the form of higher concentration risk and lack of diversification.
Before I go on to briefly summarise the top 5 crypto indices by assets under management (AUM), please keep in mind that this is NOT supposed to be taken as investment advice — always do your own due diligence & trade/invest according to your risk profile.
? Bitwise 10 Crypto Index Fund — $918 million AUM (03/26), The Fund seeks to track an index comprised of the 10 most highly valued cryptocurrencies, with the intention of providing exposure to approximately 80% of the crypto market. The fund which trades under the ticket “BITW” rebalanced monthly and is weighted by market capitalization.
? Grayscale Large Cap Fund — $469.1 million AUM (03/26), The Grayscale Large Cap Fund is a market-cap weighted index that provides investors exposure to the upper 70% of the digital asset market. The fund allows investors to more effectively implement strategic asset allocations that incorporate digital assets by using the Fund’s shares. Rebalanced on a quarterly basis it consists of a market-weighted portfolio of Bitcoin, Ethereum, Bitcoin Cash, and Litecoin (XBX, ETX, BCX & LTX).
? Bloomberg Galaxy Crypto Index — Launched by Bloomberg Index Services Limited and Galaxy Digital Capital Management. The Bloomberg Galaxy Crypto Index (BGCI) is a capped market capitalization-weighted index designed to measure the performance of the largest digital assets traded in USD. Also based on market capitalization, it is has a limitation that no cryptocurrency should constitute more than 40% of the index.
? DeFi Pulse Index (DPI) — $117.89 million AUM (03/26), DPI is a crypto-native index focused on providing investors with direct exposure to DeFi. It is designed to track tokens’ performance within the Decentralized Finance industry. The index is weighted based on the value of each token’s circulating supply. Set on Protocol’s v2 infrastructure, it consists of ten of the most popular tokens available on Ethereum.
? Bitwise DeFi Crypto Index Fund — $21.52 million AUM (03/26) The Fund seeks to track an index of the largest DeFi crypto assets, a portfolio of protocol tokens that aspire to fundamentally disrupt large parts of the legacy financial ecosystem. The fund is rebalanced monthly and aims to provide a market-cap weighted exposure, with the assets held in custody with a regulated, third-party custodian.
Originally Published on Medium
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