.jpg)
-Keerthana G, Vandana Narendra
The Cryptocurrency Index
Trolling through the modernized world, currency exchange systems climb upwards in technology. A digital payment system that has segregated itself from the banking world for the verification of transactions, has come along with its innate periodic analysis and is popularly known to be cryptocurrency. These are stored in digital wallets and use encryption thus producing its name. Under this, tools have been created acting as a performance inspection benchmark for fund managers. CryptoWire, a global cryptocurrency superapp has launched India’s first cryptocurrency index widely known as IC15 on January, 2022, which can be termed as a rule-based comprehensive market index through the capitalization of the market. The crypto index trails up the performance of 15 of the uppermost frequently traded liquid cryptocurrencies through market capitalization, across the global world. According to CryptoWire, the index elongates its usefulness by assisting in the creation of linked products within the index such as crypto funds and ETF’s. The IC15 index is showcased as the benchmark of a fundamental market of crypto products with a distinguished portrayal of the global market sentiments.
THE ORIGIN
The cryptocurrency market is swiftly mounting within the country registering nearly 8% of Indian owning cryptos. The 2021 report by CREBACO claims the investment in cryptocurrencies has distended beyond $10 billion from $923 million in the month of April 2020.
After a ballooned rise in the year 2021, cryptocurrencies passed into a phase of correction. The budding pressure of cryptos was forming through the looming regulation bill of cryptocurrency along with the warnings arriving from RBI against the utilization of cryptos. The risk-bearing factors built-in for investors, in particular, the retail investors who invest in the absence of accurate knowledge, as the crypto markets climbed in volatility compared to stock markets. The country lacked a devoted crypto index though highly known platforms were far beyond in the facilitation of crypto trading, an example being CoinSwitch Kuber and WazirX. Taking this as an incentive CryptoWire encourages the filling for the gap by launching India’s primary crypto index, IC15. Cryptowire is placed as the emergence of partnership within the industry for the widespread of research, valuable information, and knowledge allowing the participants to construct well-versed decisions.
How It Roles in The Real Word
The CryptoWire has shaped an Index Government Committee which is comprised of experts within the domain, practitioners of the industry, and faculty members that choose the cryptocurrencies from the top-most 400 coins complying with the terms of the capitalization of markets. the cryptocurrency should’ve been traded on a minimum level of 90% of days within the duration of the reviewing periods and be amongst the 100 uppermost liquid cryptocurrencies with relevance to the value of trading for coming into terms with the eligibility criteria for the index which is in the top 50 within the circulations of market capitalization. Thereafter, the committee will choose the cryptocurrency in the top 15 range. Presently, the crypto index is grounded on a base value of 10,000 with its value derivation arising from several factors, such as volume of trading for exchanges, market capitalization changes, future activities and beyond.
The Composition of IC15
All this buzz around the index has got the investors on their toes and conjectured about the viability of the index and how comprehensive the index will be. Let's look at the ideal rules laid down by the committee for a crypto to form part of the index:
Only cryptocurrency coins are to form part in the calculation of the index. Stable coins are not to be considered.
To successfully ensure that a coin is listed on the IC15 index, it becomes essential that during the review period, the coin has been traded on at least ninety percent (90%) of the trading days.
The market capitalization of the coin also forms a crucial criteria as the rule states that the coins forming the index should remain in the top 50 coins in terms of market capitalization during the preceding month.
The liquidity of the coin is also put to text and only the top 100 coins with highest liquidity get to form a part of the index.
Finally, 15 coins fulfilling all the above criteria is chosen as a part of the IC15 index.
Index Calculation and Weightage
Done with the composition and heading towards calculations, an index is accounted for by tracking the performance of assets classified under the same class.
The base value and base date of the index, in this case, are 10,000 and April 1, 2018 respectively. The index is an eclectic mix of top 15 coins and the index value is arrived at by, equating the total of circulating market capitalization value of index basket and dividing it by the index divisor. The resulting solution is multiplied with the base value of the index set at 10,000. The totality of all index constituents and their circulating market capitalization forms the base for calculating the index divisor component. The divisor of the Index Is normalized within the duration of every period of rebalancing through the multiplication with a factor of normalisation. The index is analysed, monitored, and rebalanced every quarter. An all-inclusive fund that imitates the index is a safe bet for investors as compared to the conventional trading strategies.
Eyeing the composition of the index it is known that the index values are generated based of the top 15 crypto coins and as per the current records those 15 coins and their weightage in the market can be stated as below:
Bitcoin assigned the highest weightage stands first with a weightage of 51.57%
Trailing right behind is Ethereum with an overall weightage of 25.79%.
The weightage of the coins ranking in subsequent order are Binance coin (5.03%), Solana (3.10%), Cardano (2.58%), XRP (2.33%), Terra (1.82%), Avalanche (1.57%), Polkadot (1.55%), Dogecoin (1.33%), Shiba Inu (1.08%), Uniswap (0.63%), Litecoin (0.60%), Chainlink (0.54%), Bitcoin Cash (0.48%)
How Does the Index Serve as A Valuable Element?
The index became an economic barometer that is engaged in the measurement of changes in market performance and values and the changes associated with the values that are with relevance to bonds, stocks, currency, or the overall market. Through the coming years, cryptocurrencies have expanded its base of acceptance and popularity. The new digitized currencies operate essentially with the use of blockchain technology of blockchain. Being a cost-effective method of trading with the cryptocurrencies, it can also allow you to distribute some of the risk as one is not being totally exposed to a single token. In accordance to CryptoWire, IC15 is capable of being simulated for the creation of interlinked products through the index such as ETF’s or index funds.
Investing through an index-based platform opens up the pathway for diversified means rather than investing in tokens individually which is a better option. The IC15 can track the top-most cryptocurrencies through the market capitalisation and thus, will eradicate arbitrary token carrying no essential value or feasible utilisation cases. The investors in India through traditions and practices are more risk-averse in comparison with western domains. Therefore, a crypto index is showcased to be an idyllic benchmark for the investors of India lodging within the market of cryptocurrencies. The creation of a well-balanced crypto index assists as a basis for distinctive classifications of the products of finance. This allows the provisions of benchmarks standards for fund managers which proves to be helpful.
Through the crypto index, there is an enabling capacity for investment managers and enthusiasts to monitor performances of cryptocurrencies in the global markets. India’s first crypto index, IC15, acts as the benchmark for fund managers. Its main objectives include:
-Acting as an ideal benchmark and the reflection of the fundamental crypto markets.
-Provision of simple solutions to be directed for the holding of a distinguished portfolio.
-Insightful data on crypto mining.
-Exceptional placement of the index for effective trading of derivatives within the crypto trading markets.
- To be a remarkable benchmark for monitoring performance for fund managers.
What It Holds for Existing Investors’ Future
The index carries a significant development opportunity for rising investors. The index offers insightful information on crypto mining along with the overall performance analysis of the wider crypto market. Its purpose remains within the domain of education, however, it has the capacity to open the doors for options of divergence for investors who desire to engage with other crypto tokens and blockchains. Added to this, the crypto index offers simple solutions for carrying a distinguished portfolio. This exceptionally positioned index will be supportive for investors in terms of the efficiency of derivative trading within the cryptocurrency market for trading activities. The IC15, being the benchmark for fund managers, acts as a representative of the complete market segment. This is primarily done to monitor the administration of fundamental cryptocurrencies and relevant crypto products. An example of successful investors are Tyler Winklevoss and Cameron who are known to be the prime billionaires of bitcoins who are said to carry about 100,000 coins. Moreover, Tesla, Elon Musk’s company, invested $1.5 billion in bitcoin in 2021. For existing investors, the index permits a profound understanding on the vital details on the overall ecosystem of cryptos. Due to the fact that the crypto market is always subjected to conjectures, the IC15 would be tremendously assist in helping with the evolution of crypto communities in receiving a comprehensive study on the foundations of crypto markets index of tracking additionally with the dint of global markets.
The Risk Factor
From the get-go, the risk factor presents in crypto is the biggest no-go for any investor in the market. Unless you are an investor with a heavy risk appetite with the willingness to forgo or gain huge sums of money during trades, you may not be the ideal fit to invest in the crypto market. The crypto market known to us functions at really high stakes and does not have any regulatory body overseeing its activities. The volatility in the market is, for the most part, unpredictable as even experts have had a hard time making right predictions about the market. As seen above, the two crypto currencies namely Bitcoin and Ethereum make up for a major part of the index, which means, even the slightest fluctuations in these coins can lead to a huge shift in values of the index. Lack of awareness can also be termed as a risk factor when it comes to the crypto market as it is a fairly new realm of trade for all investors and there is a high chance that the investor is not aware of the intricacies of the market before he begins his trade.
The Juxtaposition of The Returns with Other Market Indicators
Risk and Returns go in tandem with each other and now that you have an index that provides you expert analysis by tracking the top 15 coins traded in the market, you now become equipped to get on board with trading in crypto in an able manner. As much as we spoke about the risks present in the market, we cannot deny the amount of gain the market has potential to offer. A side-by-side comparison with the stock market in 2021 reveals that the IC15 index has offered 138% as returns when compared to Nifty with 24% and Gold with -3% returns. There exists a plethora of opportunities to find potential in the crypto market and make good gains from the same. But we cannot fail to mention that the market witnessed a 50% drop in 2018 a s compared to Nifty and other asset classes which witnessed only about a 4-5% drop. Therefore it becomes the responsibility of the investor to make informed decisions about investing in the crypto market.
Regulatory Framework
The Indian economy very recently signalled green to trading in the cryptocurrency market. The very fear of the government was the deregulated environment in which the market operates. This can lead to a lot of malpractice such as terrorist funding, cybersecurity threat and other serious issues which an upend the operations of an entire economy. The government’s Cryptocurrency Bill aimed at banning all private cryptocurrencies and introducing a central bank digital currencies (CBDC) named Digital Rupee is yet to be proposed in the budget session. This calls for a more regulated market ensuring safety and security from the market regulator - SEBI. Various initiatives such as the Invesco Mutual fund who came up with blockchain Funds, Navi Mutual Fund backed by Sachin Bansal how filed a document of offer with SEBI to introduce a blockchain index fund of fund have all been kept on hold due to a qualm in the regulatory policies of the country. This stands as a major drawback for the mutual fund agencies that are desire to initiate new funds with cryptocurrencies.
The index is an initiative that is applauded by many for it has definitely been a source of development in the way the market operates. This not only encourages initiatives but furthermore serves the global industry with an alternative powerful intervention. Though the index is far from attaining precision in terms of the qualitative aspects in calculations as compared to the other indices, there surely exists room for improvement in the years to come. The ‘Learn before earn’ is at the core of the initiative encouraging people to be more rational and aware for their financial decisions and ensure that more investors pitch in to grow their knowledge circle in terms of the crypto market. The all-rounded completion of this circle for the whole ecosystem of blockchains and cryptos can take place with India’s launch of the first crypto index, IC15.
REFERENCES
1. Chadha, S. (2022, January 7). Explained: India’s first crypto index and what it means for investors in India. The Times of India. Retrieved January 8, 2021, from https://timesofindia.indiatimes.com/business/cryptocurrency/bitcoin/explained-indias-first-crypto-index-and-what-it-means-for-investors-inindia/articleshow/88735729.cms
2. Desk, I. T. W. (2022, January 5). India’s first cryptocurrency index IC15 Launched: All you need to know. India Today. Retrieved January 8, 2021, from https://www.indiatoday.in/business/story/india-first-ever-cryptocurrency-index-ic15-all-you-need-to-know-1896282-2022-01-05
3. Kumar, H. (2022, January 8). All You Need to Know About IC15, India’s First Crypto Index. Https://Www.Outlookindia.Com/. Retrieved January 8, 2021, from https://www.outlookindia.com/website/story/business-news-all-you-need-to-know-about-ic15-indias-first-crypto-index/408698
4. Sinha, D. (2022). Launch of First Cryptocurrency Index in India: IC15 by CryptoWire. Retrieved 9 January 2022, from https://www.analyticsinsight.net/launch-of-first-cryptocurrency-index-in-india-ic15-by-cryptowire/
5. Kumar, H. (2022). Retrieved 9 January 2022, from https://www.outlookindia.com/website/story/business-news-all-you-need-to-know-about-ic15-indias-first-crypto-index/408698
Comments