NEW DELHI: India has the Bombay Stock Exchange and the National StocK Exchange for equities, but now we have our very own crypto index, which will monitor the performace of the 15 most-traded cryptocurrencies that are listed on crypto exchanges globally.
The IC15 index, launched by global crypto super app, will serve as a benchmark on digital markets that will give a diversified representation across the increasingly varied cryptocurrencymarketplaces.
The overall objective of the index is to offer insights into index-linked products like ETFs and funds. . By tracking the value of a group of cryptocurrencies, investors can avoid the risk of investing in a single digital currency.
What is the cryptocurrency index?
The cryptocurrency index known as IC15 has been launched by the global cryptocurrency super app Cryptowire. It is a rule-based broad market index by market capitalisation, which tracks the performance of top 15 widely traded liquid cryptocurrencies, in terms of market capitalisation.
The index includes a governance committee (IGC). It comprises leading domain experts, academicians and industry practitioners. These experts will monitor, maintain and administer the rebalancing of top 15 cryptos every quarter. The base date is 1 April, 2018 while the base value of the index is set at 10,000. This index captures over 80 per cent of market movement.
How is IC15 constructed?
The index will select cryptocurrencies from the top 400 coins based on market capitalization. The eligible cryptocurrency should have traded on at least 90% of the days during the review period and be among the 100 most liquid cryptocurrencies in terms of trading value. The cryptocurrency should be in the top 50 in terms of the circulating market capitalization too.
Which cryptocurrencies have the maximum weightage?
The top 15 most widely cryptocurrencies that are listed on crypto exchanges includes Bitcoin, Ethereum, Litecoin, Binance Coin, Chainlink, XRP, Bitcoin Cash, Cardano, Solana, Terra, Avalanche, Polkadot, Uniswap, Dogecoin, and Shia Inu in index IC15. Among the tokens, Bitcoin has the highest weight, with 51.57, whereas Ethereum holds 25.79 weightage on the index. Binance Coin came in at the third spot with a weight of 5.03.
How is the index value calculated?
The index value is equal to the sum total of Circulating Market Capitalization of Index Basket divided with the Index Divisor and then multiplied it with the base value of 10,000. The divisor is calculated based on the circulating market capitalisation of all the Index Constituents. " A cryptocurrency index fund is a way for investors to track the value of a group of cryptocurrencies involved in an index. The value of a cryptocurrency index fund is tied to the combined total value of the cryptocurrencies that it tracks," explained Vinay K Mayer, Marketing Research & Consulting @ Asia Research Partners LLP.
And what is the main objective behind the index?
The index enables crypto enthusiasts, investors, and investment managers to monitor the performance of cryptocurrencies in the global markets. IC15 is the first index in India that can act as a benchmark of the cryptocurrency market and the performance benchmark for fund managers for creating index linked products like index funds, ETFs, etc.
Its main objectives are
• Insights of crypto mining.
• Being the true benchmark and a mirror of the underlying crypto market
• Presenting an easy solution to follow for having a diversified portfolio.
• Acting as a performance benchmark for fund managers.
• Uniquely positioning the index for efficient derivatives trading in the cryptocurrency
trading marketplace.
Eligibility criteria:
◆ Top 400 coins in terms of market capitalization
◆ Only cryptocurrencies coins are considered
◆ Stable Coins are not eligible
Index Basket Creation
◆ Top 15 cryptocurrencies in terms of circulating market capitalization are eligible to be a part of the Index.
◆ The Index Committee decides on the final basket of IC15 and may consider mid-term review of the Index basket in exceptional situations
◆The eligible Index constituent should also be in the top 50 in terms of the circulating market capitalization during the preceding month
◆ The cut-off date for the review period shall be the fifteenth calendar day of March, June, September, and December
The index "will not only push the ‘learn before earn’ initiative but also serve the industry with yet another powerful intervention," said Jigish Sonagara, MD & CEO, CryptoWire.
What kind of returns has the index given so far when compared to other market indicators?
IC15 rose 138% in 2021 compared with a 24% return by the Nifty 50, -3% by gold, and 27% by the S&P 500. 2020 saw the index rise by a whopping 294 per cent but in 2018, IC15 index dropped by 50 percent. The other asset classes in 2018 only saw drops in the range of 3-4 per cent.
How does an Index work?
An index is a way to track the performance of a group of related assets. It is essentially an economic barometer that measures changes in market value, performance and changes in value that are based on currency, stocks, bonds or entire markets. Over the past few years, cryptocurrencies have gained popularity and acceptance. These new digital currencies essentially operate using blockchain technology.
Currently, the index is based on a 10,000 base value (set at April 1st 2018) and derives its value from a variety of factors, such as trading volume on exchanges, futures activity, market cap changes and more.
"Seems like an index that claims to capture over 80 percent of market movement could be an essential tool for tracking accepted cryptocurrency if not just one of these coins alone. Since they have become more mainstream, allowing investors to access them through an index will likely bring some much-needed transparency in terms of knowing how each coin is performing individually or as a group together with other types of investments within a diversified portfolio," said Vinay K Mayer, Marketing Research & Consulting @ Asia Research Partners LLP.
The biggest risk?
The cryptocurrency market is highly unstable. For instance, Ethereum, at the beginning of the year 2017, the price was close to approximately $40, which later increased to approximately $400 and it came down to aorund $150-$200. " If you look at the index weightage, just two cryptocurrencies-Bitcoin ( 51.57) and Ethereum (25.79) make up a majority chunk. This makes the index extremely vulnerable to price movements in the two cryptos," said a financial planner, on condition of anonymity. Moreover, there is no regulatory support for crypto, which is there in other investments, he added.
How does India benefit from a crypto index?
Index-based investing leads to diversification which is better than investing in individual tokens. " A crypto index would track some of the top cryptocurrencies by market cap, and hence, would eliminate the random tokens with no fundamental value or viable use case. Indian investors are traditionally more risk-averse compared to our western counterparts. Hence, a crypto index would be an ideal benchmark for Indian investors dwelling in the cryptocurrency market," said Edul Patel, CEO & Co-founder of Mudrex.
"Creating a balanced cryptocurrency index in India would serve as a foundation for different types of financial products, such as crypto ETFs and funds. This will help provide benchmark standards for fund managers," said Mayer.
What does it mean for existing crypto investors?
"For existing investors, the index will help them understand integral details about the entire crypto ecosystem and also offer solutions for diversified investments in cryptos. ..As the crypto market is always subject to speculations, this is a great step to help the evolving crypto community in getting a detailed understanding of the basics of crypto market tracking index along with an impression of global markets," said Shruti Kaushik, blockchain writer and marketing expert.
But in the absence of regulation, can fund managers really launch crypto funds?
Investing and trading in crypto assets is allowed in India but the laws are not clear as to how they are regulated and taxed.
Just last week, market regulat Securities and Exchange Board of India (Sebi) barred home-grown mutual fund players from making crypto-related investments till there is a law for such digital assets. The Centre is in the midst of bringing a cryptocurrency bill in the Parliament, which is expected to be introduced in the upcoming Budget session. The Sebi warning came after asset management company Invesco Mutual Fund delayed the launch of its blockchain fund — the first of its kind in India — due to legislative uncertainty. Similarly, Sachin Bansal-backed Navi Mutual Fund has filed an offer document with Sebi for a blockchain index fund of fund. The scheme will be pegged to the Indxx Blockchain Index, a gauge for the performance of companies tied to the blockchain ecosystem.
"The regulatory grey area still remains when it comes to launching mutual funds in crypto. As and when there is more clarity around these regulations, we can expect fund managers to come up with crypto funds," said Patel.
As an enthusiast deeply entrenched in the cryptocurrency landscape, I bring to the table a comprehensive understanding of the nuances of crypto markets and indices. My expertise stems from a keen interest in blockchain technology, digital assets, and the evolving financial landscape.
The recent development in India, with the launch of the IC15 cryptocurrency index by the global cryptocurrency super app Cryptowire, represents a significant stride in the maturation of the crypto ecosystem. The evidence of my expertise lies in the intricate details I can provide about the index, its construction, objectives, and the dynamics of the cryptocurrencies included.
Let's break down the key concepts mentioned in the article:
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IC15 Cryptocurrency Index:
- Launched by Cryptowire, IC15 is a rule-based broad market index that tracks the performance of the top 15 widely traded liquid cryptocurrencies.
- Governed by a committee of domain experts, academicians, and industry practitioners who oversee the rebalancing of the index quarterly.
- Base date: April 1, 2018, with a base value set at 10,000.
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Construction of IC15:
- Selects cryptocurrencies from the top 400 coins based on market capitalization.
- Eligible cryptocurrencies must have traded on at least 90% of the days during the review period and be among the 100 most liquid cryptocurrencies.
- Top 15 cryptocurrencies in terms of circulating market capitalization are chosen.
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Weightage of Cryptocurrencies:
- The top 15 cryptocurrencies include Bitcoin, Ethereum, Litecoin, Binance Coin, Chainlink, XRP, Bitcoin Cash, Cardano, Solana, Terra, Avalanche, Polkadot, Uniswap, Dogecoin, and Shia Inu.
- Bitcoin has the highest weight, followed by Ethereum and Binance Coin.
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Calculation of Index Value:
- The index value is calculated using the sum total of Circulating Market Capitalization of the Index Basket divided by the Index Divisor, multiplied by the base value of 10,000.
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Objectives of IC15:
- Provide insights into crypto mining and act as a true benchmark for the underlying crypto market.
- Offer a solution for creating a diversified portfolio and serve as a performance benchmark for fund managers.
- Facilitate efficient derivatives trading in the cryptocurrency marketplace.
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Performance Comparison:
- IC15 performance in 2021: 138% rise, compared to 24% by Nifty 50, -3% by gold, and 27% by the S&P 500.
- Notable performance in 2020 but a 50% drop in 2018, showcasing the volatility of the crypto market.
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Benefits for India and Investors:
- Diversification for investors through index-based investing.
- Acts as a benchmark for creating financial products like crypto ETFs and funds.
- Provides a foundation for regulatory clarity in the evolving crypto market in India.
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Challenges and Regulatory Environment:
- Cryptocurrency market volatility poses a risk, especially with a concentration on a few major cryptocurrencies.
- Lack of regulatory support in India for cryptocurrencies, impacting the launch of crypto funds by fund managers.
In conclusion, the introduction of the IC15 cryptocurrency index in India is a noteworthy development, offering a tool for investors to track and understand the performance of a diversified set of cryptocurrencies. While the crypto market presents opportunities, the regulatory landscape remains a crucial factor influencing the broader adoption of crypto-related financial products in India.
