Indices on Cryptocurrencies: an Evaluation
19 Pages Posted: 2 Aug 2021
Date Written: July 28, 2021
Abstract
Several cryptocurrency (CC) indices track the dynamics of the rising
CC sector, and soon ETFs will be issued on them. We conduct a qualitative
and quantitative evaluation of the currently existing CC indices. As the CC
sector is not yet consolidated, index issuers face the challenge of tracking the
dynamics of a fast-growing sector that is under continuous transformation. We
propose several criteria and various measures to compare the indices under review.
Major di erences between the indices lie in their weighting schemes, their
coverage of CCs and the number of constituents, the level of transparency, and
thus their accuracy in mapping the dynamics of the CC sector. Our analysis
reveals that indices that adapt dynamically to this rising sector outperform
their competitors. Interestingly, increasing the number of constituents does
not automatically lead to a better t of the CC sector. All codes are available
on Quantlet.com
Keywords: Cryptocurrency, Index, Market Dynamics, Bitcoin
JEL Classification: C43, G19
Suggested Citation: Suggested Citation