CryptoDaily is very proud to sponsor a series of cryptocurrency market indices that are designed to provide some unique perspectives about digital assets.
As a source for cryptocurrency industry coverage, CryptoDaily specialises in providing fundamental news coverage and technical commentary related to the blockchain, digital assets, and token economy industry. There are presently more than 2,000 individual cryptocurrency assets in the cryptocurrency market, typically created through protocols in technology infrastructure known as blockchain networks.
One of the challenges that many cryptocurrency market participants encounter is trying to comprehend the differences between various cryptocurrency assets. In many cases, the differences are subtle or delineated by technical jargon that is not readily comprehensible by many industry participants, especially those who lack deep technical knowledge about blockchain networks.
CryptoDaily retained the services of indeXcel, a specialist index construction company, to design, create, and calculate the proprietary cryptocurrency indices that CryptoDaily sponsors.
Through its indices, CryptoDaily seeks to increase market transparency, engender diversification and risk management, simplify performance measurement, and facilitate decision-making. The intention is for these indices to serve as information aggregates, reference values, and benchmarks for the cryptocurrency markets.
|Objective||To develop a benchmark index with constituent assets that have relatively small market capitalisations to their peers in the cryptocurrency market.|
|Number of Constituent Assets||33|
|Derivation||Third tercile of the top 99 cryptocurrency assets|
|Maximum Weighting per Asset||100%|
|Weighting||Square root of market capitalisation (i.e. root-cap weight)|
|Rebalancing Frequency||Every 30 days|
|Update Frequency||Once daily|
|Data Source||Transactional prices derived from exchanges|
|Name (Long Form)||The CryptoDaily Small-Cap Cryptocurrency Index|
|Name (Short Forms)||CryptoDaily Small Cap Crypto Index
CD Small Cap Crypto Index
The first four cryptocurrency indices sponsored by CryptoDaily are:
These indices are proprietary and exclusive to CryptoDaily, having been designed by indeXcel for the benefit of CryptoDaily’s readers and viewers. Each of the indices sponsored by CryptoDaily can be viewed in a user-defined manner by clicking the links above.
The four indices were constructed with market capitalisation buffer zones in mind, meaning market cap divisions necessarily overlap with no hard cutoff points. This approach was important given the significant volatility in market prices evident in the cryptocurrency market.
First, CryptoDaily detected there is a significant knowledge gap in the cryptocurrency market that originates from the fact that there are more than 2,000 cryptocurrency assets in the industry. While there are other asset classes such as equities that have many more individual assets such as shares in publicly-traded companies, many of the fundamental and technical data about these types of assets have been standardised for decades, and are distributed through mainstream news discovery sources that have existed for decades.
Second, given the fragmented distribution of 2,000+ cryptocurrency assets in the market, it can become challenging to obtain price discovery and understand asset price fluctuations relating to individual coins, groups of coins, and the industry as a whole. By publishing its proprietary cryptocurrency indices, CryptoDaily provides unique composite price discovery about cryptocurrencies. The objective is to help consumers of the indices data better understand asset price fluctuations of the industry as a whole.
Third, financial indices have been around since at least 1896 when Charles H. Dow, a finance journalist, created the first financial index. He also co-founded the Dow Jones & Company and founded The Wall Street Journal which has become one of the most respected financial publications in the world. Importantly, he also developed a series of principles for analysing market behaviour, later known as Dow theory which then established the foundation for technical analysis. In creating the Dow Jones Industrial Average in 1896, Charles H. Dow created the ability to track the closing share price of twelve different companies. Since this time, tens of thousands of unique indices have been created across many asset classes to help provide context about the valuations of asset prices. By publishing proprietary cryptocurrency indices, CryptoDaily is participating in a well-established practice that is nearly 125 years old.
Fourth, financial indexing fulfills many very important roles in the capital markets. Indexing provides definition and clarity on groups of asset prices, market movements, the hierarchical structure of asset markets, relationships between the asset price valuations of correlated and non-correlated groups of assets, and technical data with which portfolio construction, investment, trading, and risk management decisions can be made. By publishing data such as proprietary cryptocurrency indices, CryptoDaily hopes to equip market participants with more and greater tools to enhance their ability to successfully participate in the cryptocurrency market.
Fifth, there are currently not too many cryptocurrency indices in the market, and there are certainly not standard bearers similar to the Dow Jones Industrial Average (DJIA) or the Standard & Poor’s 500 (S&P 500). This means that CryptoDaily has the opportunity to calculate and publish regular data with a high degree of reliability that have the potential to address the existing knowledge gap in the market.
CryptoDaily maintains a long-term vision regarding its indexing activities.
CryptoDaily now publishes end-of-day index calculations for its three inaugural indices including:
In calculating and publishing these proprietary indices, CryptoDaily contributes much-needed price discovery to the market, allowing consumers of the data to gain deeper understandings about shifts in asset price valuations, and how they impact sub-sets of the entire cryptocurrency market.
There are several other goals and objectives on CryptoDaily’s road map relating to indices.
First, CryptoDaily plans to create and publish additional proprietary indices. Some of these indices will likely focus on the prices of specific cryptocurrency assets, and other indices will likely focus on the prices of specific groups of assets, much in the same way that conventional mainstream indices focus on specific sectors.
Second, CryptoDaily plans to develop and publish proprietary intraday indices. These intraday calculations will be managed at strategic intraday times, resulting in intraday price discovery that can help consumers comprehend intraday fluctuations in asset prices. Some of these intraday index calculations may be made upon the three aforementioned inaugural indices that CryptoDaily has launched. Other intraday index calculations may consist of new index solutions that have not yet been released by CryptoDaily. As CryptoDaily’s market data services capabilities expand, so too will CryptoDaily’s abilities to incorporate a wider array of cryptocurrencies in developing proprietary index solutions.
Third, CryptoDaily plans to avail customised versions of its proprietary indices, in both an end-of-time format and an intraday format. As an example, CryptoDaily will provide third parties with the ability to publish its proprietary indices in quoted currencies other than traditional fiat currencies such as the US dollar. There are more than 2,000 cryptocurrencies in the market and a very large percentage of them are searching for utility and widespread adoption. CryptoDaily has created the ability to denominate index values in asset prices other than fiat, and as the CryptoDaily index benchmarks gain industry acceptance and become popularised, they will create additional value by creating price discovery opportunities associated with other cryptocurrencies and other blockchains.
Fourth, CryptoDaily may elect to avail access to its proprietary indices to third parties including financial market practitioners and participants who may want to develop solutions and products around them. One example of this could include the licencing of these proprietary indices so that third-party investments managers can develop and offer investable or tradable products that track or are derived from the benchmark indices that CryptoDaily publishes.
Several years ago, the importance of indexing grew significantly at the expense of active investing when investors directly or indirectly made decisions to move towards portfolio decision-making processes that were generally passive. This transaction was precipitated by a discernible set of major change forces that have transformed the capital markets globally. This shift coincided with a growing inability of many active investment managers to successfully “beat the market” by delivering returns-on-investment in portfolios that exceeded conventional benchmarks such as mainstream financial indices.
Investors and investment managers learned that indexing oftentimes results in higher returns-on-investment and savings on taxes and other operating costs. This approach to portfolio management allows many investors to more concretely define their investing and trading goals by synchronising them to benchmarks. Real world data have convincingly shown that indexing outperforms both bull markets and bear markets. Interestingly, Standard & Poor’s Dow Jones Indices published a statistical analysis in 2016 that described the inferior record of “active” portfolio managers, with approximately two-thirds of active large-capitalisation investment managers underperforming the S&P 500 large cap index during 2015. Similarly, active investment managers were not much better at earning returns from small-capitalisation equities with nearly three-quarters of small-captitalisation investment managers underperforming the S&P small-cap index. Notably, more than 80% of large-cap investment managers underperformed their benchmark indices during a ten-year period through December 2015.
One interesting paradox of security analysis and active portfolio management is that as investment managers become more skilled, the financial markets become more efficient and it becomes more challenging for investment managers to identify assets with mispriced valuations. As data, news flow, and information become available regarding assets, the data become reflected in the prices of assets almost instantly. These prices are not necessarily correct or optimal prices, but market participants often only learn about these incorrect prices with a time lag during which active investment managers are oftentimes mispricing the valuations of assets and generating portfolio inefficiencies through their buying and selling activities.
During the past several decades, market dynamics have changed so much that consistently “beating the market” has become many times more challenging, and this has resulted in in an appreciable increase in indexing activities and indexing strategies. Anecdotal research has shown that a large percentage of actively managed funds underperform index funds. The lower cost basis and fee structures typically associated with indexed products remain a persistent reason why actively-managed investment products have a long-term tendency to underperform low-cost index funds. Tax savings and lower expense ratios typically result from indexing strategies. Moreover, indexing helps market participants avoid the complexities associated with evaluating investment managers and deciding to shift between them, often at less-than-ideal times.
Disclaimer: The CryptoDaily Large-Cap Cryptocurrency Index, The CryptoDaily Mid-Cap Cryptocurrency Index, and The CryptoDaily Small-Cap Cryptocurrency Index, and other indices sponsored and/ or published by CryptoDaily Pte Ltd are provided across the media network of Crypto Daily Pte Ltd including its website at www.cryptodaily.co.uk for informational purposes only. Crypto Daily Pte Ltd, its affiliates, officers, directors, and employees are not responsible for the accuracy or completeness of any index or related feature sponsored and/ or published by Crypto Daily Pte Ltd. Any index sponsored and/ or published by Crypto Daily Pte Ltd shall not be utilised as investment advice or trading advice by any viewer or visitor of any media property controlled or owned by Crypto Daily Pte Ltd, or any viewer or visitor of any third-party media property or website that is not controlled and/ or owned by Crypto Daily Pte Ltd. Reproduction or republication of Crypto Daily Pte Ltd’s index data by any third party without Crypto Daily Pte Ltd’s explicit permission is strictly forbidden and prohibited. All index data and related information provided by Crypto Daily Pte Ltd is impersonal and not tailored to the needs of any person, entity, organisation, or group of people. Past performance of an index is not an indicator or guarantee of future results. It is not possible to invest directly in an index, as exposure to an asset class represented by an index is available through investable instruments based on that index. Crypto Daily Pte Ltd does not sponsor, endorse, promote, sell, or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. Crypto Daily Pte Ltd makes no assurance that investment products based on any index will accurately track index performance or provide positive investment returns. Crypto Daily Pte Ltd is not an investment advisor, and makes no representation regarding the advisability of investment in any investment fund or other investment vehicle.