India’s First Cryptocurrency Index IC15: Decoding IC15

Cryptocurrency is a form of a currency that exists virtually or digitally. They enable secure transactions with the help of cryptograph. It uses a decentralised network system that records transactions and also issues new units. It is difficult to forge or counterfeit them because of the technology used. Cryptocurrencies are usually created through mining i.e.; the coins are generated by solving complex mathematics problems with the help of computer power. They can also be purchased from cryptocurrency exchanges.

Cryptowire, a Mumbai headquarter global crypto supper app, launched India’s first cryptocurrency Index called ‘IC15’. The Index of Cryptos, IC5, is a rule-based broad market index by market capitalization. It includes the most widely traded and liquid 15 cryptocurrencies of the world. The 15 currencies included in the list are:

  • Bitcoin
  • Ethereum
  • Binance Coin
  • Solana
  • Cardano
  • XRP
  • Polkadot
  • Terra
  • Avalanche 
  • Dogecoin
  • Shiba Inu
  • Chainlink
  • Uniswap
  • Litecoin
  • Bitcoin Cash

Purpose and Insights for INC15

The index aims to serve as a performance benchmark of the underlying cryptocurrency market. The weight of each constituent is based on their respective market capitalization. The base value of the index is 10,000 with a base date of April 1,2018. 

Cryptowire, a crypto supper app, says that the index has been developed to offer insights into the mining of cryptos and also help investors, investment managers and crypto enthusiasts track and monitor the performance of the cryptocurrencies in the global financial market. It has been created with the objective to provide a single platform to have access to a diversified portfolio of the top 15 crypto currencies from a basket of more than 8000 existing cryptocurrencies. It also facilitates easy and accurate replication of the index for creation of index linked products like ETFs, Index funds, structure products, etc.  The index acts as a performance benchmark.

The features of the index are:

  1. The Index serves as an industry barometer
  2. It is simple and easy to replicate for creation of different investment products
  3. IC15 is also a transparent and efficient benchmark
  4. It offers a lower cost investment
  5. It is very helping in robo-advising or robo-investing

Cryptocurrency Diversification

Bitcoin has the highest weight in the iC15 index with a share of 51.57% followed by Ethereum which has 25.79% share. All the other currencies hold less than 5% weight in the index barring Binance coin which has 5.03% share. The share or weight of each coin in the index is determined based on the circulating market capitalization of each individual coin. The circulating market capitalization is calculated by multiplying the price of each cryptocurrency with its respective circulating supply of each currency. 

The currency of the index is USDT and has a daily volatility of 4.4%. Since its inception in 2018, it generated a -50% return in the first year only. Every year after that it has rewarded deftly to its investors. In 2019, the index gained 53% and later posted a gain of 294% in 2020 and in the previous year i.e., 2021 it increased by 138%. 

Index Criteria

In order for a currency to be eligible to be included in the index it should be traded on at least 90% of the days under the review period taken into consideration to include the currency. It should also be included in the list of top 100 most liquid cryptocurrencies in the world and also in the list of the top 50 circulation market capitalizations of the preceding month before the review period. 

The index is reviewed on a quarterly basis with a cut off period being the 15th of March, June, September and December. The review is done to check if the currencies included in the index still meet the eligibility criteria. The index is further checked for reconstitution i.e., whether to include or exclude the index constituents and also rebalancing of the divisor is done on the first business day of January, April, July and October. In case of any of the above changes, the changes are to be informed five business days prior to the reconstitution.

Index Committee and Other Details

The governance committee of the index consists of domain experts, industry practitioners and academicians. They will oversee the functioning of the index. The committee will also administer and rebalance the index which takes place every quarter.

Over the passage of time, cryptocurrency has gained acceptance from people around the world and emerged as another form of an alternative asset. Though being an alternative asset and not having any physical existence and being mined with the help of technology, the IC15 index has had a 14% correlation with Nifty, 13% with the Sensex and 27% with S&P 500. It also has a 13% correlation with gold. 

Crypto Bill

A crypto bill was introduced in the parliament of India called The Cryptocurrency Regulation of Digital Currency Bill,2021. The bill was expected to be approved in the winter session of the parliament but it did not happen. It looks like the bill will bring in a lot of restrictions on this alternative asset class and may even ban private cryptocurrencies in India. The RBI and the central government are working on developing their own official digital currency. While there are concerns over the usage of cryptocurrencies, regulation rather than prohibition could be a better option in India and embracing digital currencies may serve as a way for India to lead into the future.

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