Cryptocurrency benchmark

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Having a portfolio of cryptocurrencies measured against a valid benchmark and index provides both analysis of the excess alpha and a documented track record of investing. This can help to analyze scenarios about the investing strategy chosen, the risk management, the profitability, and provide very important feedback for portfolio managers and professional investors. For benchmarks to be valid they need to exhibit the following characteristics: 1. The identities and weights of securities or factor exposures constituting the benchmark are clearly defined.

It is possible to forgo active management and simply hold the benchmark. That is, investors can effectively purchase all securities in the benchmark. The benchmark return is readily calculable on a reasonably frequent basis. A good benchmark will have a transparent set of public rules and, therefore, predictability for investment managers. Reflective of current investment opinions. The manager has current investment knowledge be it positive, negative, or neutral of the securities or factor exposures within the benchmark.

Market capitalization is not computed as some instantaneous number — the volatility in the cryptocurrency market is such that this would destabilize the index composition too much. Instead, the CCi30 uses an exponentially weighted moving average of the market capitalization. The weighted average Market Capitalization helps smooth the volatility to give the most accurate portrait of market capitalization at any given point.

The number of constituents was set at 30 because it is the minimum number necessary to be statistically significant. The use of more constituents would generate higher fees with no significant improvement to performance and any less than thirty would risk reduced performance, insufficient diversification, compromised statistical significance, and missed opportunities to pick the next rising star.

By taking the top 30 cryptocurrencies, the CCi30 captures a very high percentage of the cryptocurrency market capitalization. In other words, the margin of error of the index value as an indicator of the market is just 1. The square root function was chosen as a hybrid that most accurately weights the constituents based on the current conditions of the cryptocurrency market. A simple market capitalization weighted index would be dominated by the top two cryptocurrencies, while a more slowly decaying weighting, or in the extreme case, equal weighing, would give too much weight to the tiny, illiquid cryptocurrencies at the bottom of the range.

In order to accurately capture the movements of the market, no caps or floors are implemented upon the weights of the cryptocurrencies.