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Disclaimer: the thumbnail image does not represent an "index" referred to in this article.
Crypto Indexes are multiple crypto instruments merged into one indicator based on their respective prices. It follows and measures the performance of a specific set of instruments based on a calculated formula.
This is a list of different types of Crypto Indexes in the market:
- All Crypto Index (overall performance of the cryptocurrency sector)
- Major Crypto Index (performance of the largest and most liquid portion of the cryptocurrency market)
- Emerging Crypto Index (a grouping of the less established altcoin markets like DASH, NEO, TRX etc.
- Crypto 10 Index (performance of the top 10 cryptocurrencies in the market)
- Crypto Volatility Index (captures the volatility of the daily price return of the Crypto 10 Index over the previous 30 days)
Some exchanges add different weight % to certain cryptocurrencies depending on their popularity, market capitalisation or other relevant factors.
How it differs from stock market indexes
Traditional stock market indexes list the price info for shares in companies while crypto indexes list the price info for cryptocurrency assets of the various blockchain-based networks. Cryptocurrency price indexes tend to list the majority of crypto tokens available on the open market. Traditional stock market indexes will only list a limited number of stocks, with some common denominator between them - usually type of sector or size of company like S&P 500 (for 500 largest companies in the U.S by market value) or FTSE 100 (for 100 largest companies listed on the London Stock Exchange).
Where do Crypto Indexes obtain their data?
The most reputable indexes obtain their data from multiple exchanges instead of just one link to the global market. The best indexes protect themselves against price surges from single exchanges with certain formulas. The price of a coin from the last trade is tracked by a receipt of a report of the amount paid for the currency, with a timestamp. Trading data is made available through Application Programming Interfaces (API's) which allows data to be transferred automatically without a website obtaining the data manually. The good exchanges allow you to do this.
What does the data consist of?
- Trade price (the last amount someone was willing to pay for the token)
- Transaction Volume (the amount of tokens traded over a specified period of time)
- Coin ID (e.g. BTC, ETH etc.)
- Timestamp (exact moment of the transaction)
- Exchange rate (depends on the Digital/FIAT currency given at the given time)
Calculation of the price... is based on the 24-hour volume weighted average (VWA). To see how it is calculated, watch this video.
Accuracy strives to be real-time. It's not a given based on what you observe at a specific time. By the time it takes any person to observe the current index price, at least three trades might have occurred on one of the exchanges with one of the indexed currencies.
Who benefits from these indexes? Those who know whether the consolidated price index will rise or fall within a specific time-frame - the buyers or sellers with insight, as it is with any trade.
Benefits and risks
The benefit of the instrument is looking at a single indicator to take a position in the cryptocurrency sector instead of trading different coins. Another advantage is paying one fee instead of paying fees for multiple trades on individual coins. It helps spreading risk instead of being exposed to a single coin. Be aware that cryptocurrency spread bets & CFDs are high-risk speculative products. High volatility combined with leverage could lead to significant losses or profits.
You can trade crypto indexes at these exchanges:
Nothing on this Blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Blog I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Blog are just that – an opinion or information. You should not use my Blog to make financial decisions and I highly recommended you seek professional advice from someone who is authorised to provide investment advice.