Introducing Crypto Indices: By The S&P Group!

Cryptocurrency Indices

What is an index?

An index is a measure or an indicator of something. In terms of finance, an index tracks the record of a securities market. Investors use indices to track the performance of stock markets. Famous examples of stock market indexes are the Dow Jones Industrial Average (USA), Sensex (India), S&P500 (USA) and many more. Now introducing the Crypto Indices!

crypto indices
Source: Corporate Finance Institute

Is there a cryptocurrency index?

Since the cryptocurrency market decentralized, there wasn’t an index to track its performance until recently. A few days back, the S&P Dow Jones Indices, the leading index provider, announced that it will launch various cryptocurrency indices in order to track the performance of popular coins. In accordance with this announcement, The company has launched an index tracking approximately 240 digital assets of the broader crypto market .  

An interesting fact is that this is not the first crypto index. The S&P Dow Jones Indices has launched various other indexes relating to crypto. These indexes include cryptocurrencies that meet the minimum liquidity and the market capitalization criteria. The market capitalization of a coin is the product of the total supply of the coin with its market price. They should also be listed on a recognized trading exchange in order to be included on an index.

The aim of these indices is to bring greater transparency in the popular asset class. The S&P group’s indices are developed and updated by Lukka, an advanced blockchain based company. The company tracks and records the performance of the top 550 cryptocurrencies including Bitcoin, Ethereum, Tether and Litecoin.

Why were crypto indices launched?

The S&P group has recognized the emergence of cryptocurrencies as an asset class. According to the official website of the company, there are about 8000 cryptocurrencies floating in the market. Since then, the total market capitalization of the asset class as a whole has reached $1.36 trillion. The S&P group realized that investors are willing to invest a part of their portfolio into this asset class. Thus, it launched a number of crypto indices so as to help investors track the performance of their preferred assets.

According to the company, “The S&P Cryptocurrency Indices were created to bring transparency to this dynamic new market.”

Which crypto indices have been launched till date?

The company has launched eight cryptocurrency indices till date. The following are the names:

1)  S&P Bitcoin Index: This index tracks the sole performance of Bitcoin and depicts it in accordance to its market capitalization.

2)  S&P Ethereum Index: This index tracks the sole performance of Ethereum and depicts it in accordance with its market capitalization.

3)  S&P Cryptocurrency MegaCap Index: This index measures the performance of the two largest cryptocurrencies, Bitcoin and Ethereum.

4)  S&P Cryptocurrency Broad Digital Market Index: This index measures the performance of the cryptocurrencies which meet the minimum liquidity and the market capitalization criteria.

5)  S&P Cryptocurrency LargeCap Index: This index is a subsidiary of the BDM index. It tracks the performance of the BDM’s constituents which have the largest market capitalization.

6)  S&P Cryptocurrency BDM Ex-MegaCap Index: This index tracks the performance of the cryptocurrencies of the Broad Digital Market excluding those present in the MegaCap index.

7)  S&P Cryptocurrency BDM Ex-LargeCap Index: This index tracks the performance of the cryptocurrencies of the Broad Digital Market excluding those present in the LargeCap index.

8)  S&P Cryptocurrency LargeCap Ex-MegaCap Index: This index tracks the performance of the large cap coins of the BDM excluding those present in the MegaCap index.

crypto indices
Source: SPGlobal

What are the benefits of cryptocurrency indices?

The introduction of various indices on cryptocurrencies has led the asset class into mainstream finance. Owing to the introduction of indices, investors will now be able to track the performance of the various coins without having to track them individually. Moreover, the presence of indices brings awareness about its existence and utility among those who are wary of cryptocurrencies or digital assets.

Moreover, indices provide an accurate performance of all the coins according to their respective market capitalisations. More importantly, the introduction of indices can induce hedge funds to launch cryptocurrency index funds. These index funds can allow users to diversify their investments among all the coins and track their portfolio value each day with ease.

In conclusion, the indices provided by the S&P group will prove beneficial to the investors as well as the broader market!