CoinShares International Limited, Europe’s largest and longest standing crypto firm, announced the launch of two new Indices to expand its family of digital asset indices following the launch of the CoinShares Gold and Cryptocurrency Index (CGCI) in 2020.
The two new indices include the CoinShares Gold and Bitcoin Index (CGBI), the first EU Benchmark Regulations (EU BMR) compliant index for the digital asset industry that combines Bitcoin and gold, and the CoinShares Equally Weighted Crypto Index (CECI), the first equally weighted index of its kind. The indices, now live on Bloomberg Terminals and Refinitiv (formerly Reuters), are designed to provide exposure to cryptoassets while improving average returns and reducing volatility.
While there are several existing cryptoasset indices that offer broad exposure to crypto assets through market capitalization weighting, they have proven to be limited in risk diversification due to the high correlation among cryptoassets and are characterised by a volatility close to that of a single cryptoasset. CoinShares developed the CGCI index family to bring more effective risk control to cryptoasset index products. The initial CGCI index was the product of two years of academic research conducted in partnership with Imperial College London, which found that a pairing of gold and cryptoassets in a way that accounts for their risk contribution delivers a risk-adjusted return profile that is superior to holding gold or cryptoassets alone.
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The CGBI is a novel index designed to have moderate operating costs and provide risk-managed exposure to Bitcoin. The unique construction of the index leverages the characteristics of two asset classes –the high volatility of Bitcoin, the low volatility of gold, and the lack of correlation between the two.
The CECI has been developed to express broader exposure to the digital asset class. We believe there are several advantages to an equal weighted index over a market capitalisation index. Evidence suggests that equal weighted indices have historically produced superior returns. Equal weighting makes an index more diversified, rather than heavily concentrated by a dominant player, this is particularly problematic in the digital asset world where Bitcoin has dominated for so many years. While equal weighted methodologies can lead to greater volatility and drawdowns, on balance, we believe capturing the ascendance of smaller, upcoming digital assets is more important in the rapidly growing digital asset class.
Daniel Masters, Chairman of CoinShares commented, “Robustly researched and documented index products were the catalyst for institutional adoption of commodities in the late ’90’s through the advent of the Goldman Sachs Commodity Index. These new indices use academic research and offer benchmark regulated status to pass muster with even the most stringent investment committees.”
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James Butterfill, a member of the Index Committee, added “The expansion of the CGCI index family helps deliver effective risk adjusted returns, while the equally weighted crypto index delivers much broader exposure than market cap weighted indices, more effectively capturing the expansion of the digital asset ecosystem.”
CoinShares worked closely with the registered Benchmark Administrator, Compass Financial Technologies to create robust, replicable, and EU Benchmark Regulations (EU BMR) compliant indices. CoinShares is also using leading market data providers Kaiko and Messari to ensure the reliability of the indices.
The indices are readily licensable and can be tracked by CoinShares. Investors can gain exposure through CoinShares Capital Markets, the proprietary trading arm of the group. CoinShares is currently investigating opportunities to deploy the indices as investable benchmarks in its passive products business which manages $4.3B in AUM, under the leadership of CRO Frank Spiteri.
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