CoinShares has launched the CoinShares Gold and Cryptoassets Index (CGCI), the first EU Benchmark Regulations (EU BMR) compliant index for the digital asset industry that combines digital assets and gold. The index, now live on Bloomberg Terminals and Refinitiv (formerly Reuters), is designed to provide exposure to cryptoassets while improving average returns and reducing volatility.
The CGCI is a novel index designed to have moderate operating costs and provide risk-managed exposure to cryptoassets. The unique construction of the index leverages the characteristics of two asset classes –the high volatility of cryptoassets, the low volatility of gold, and the lack of correlation between the two.
While there are several existing cryptoasset indices that offer broad exposure to crypto assets through market capitalisation 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 CGCI to bring more effective risk control to cryptoasset index products.
CoinShares has a legacy of bridging the gap between digital assets and traditional finance. Over the last seven years, the firm has built innovative, regulated, institutional-grade products and services backed by robust research. This legacy started with the first regulated Bitcoin fund in 2014, and continues today via the XBT Provider ETP offerings and other asset management and trading services built by the Group.
Daniel Masters, Executive Chairman of CoinShares, says: “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. This crypto and gold index aims to do the same, by using academic research and its benchmark regulated status to pass muster with even the most stringent investment committees.”
Academic research conducted in partnership with Imperial College London 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.
Professor Will Knottenbelt, Director of the Imperial College Centre for Cryptocurrency Research and Engineering, says: “The CGCI is the product of nearly two years of research, development and experimentation conducted by Imperial in close collaboration with CoinShares.”
Michael Petch, Chair of the Index Committee, adds: “The design of the CGCI utilises the concept of volatility harvesting. We are excited to introduce an index that provides investors with portfolio diversification in the form of cryptoassets while minimising risk using gold.”
CoinShares worked closely with the registered Benchmark Administrator, Compass Financial Technologies to create a robust, replicable, and EU Benchmark Regulations (EU BMR) compliant index. CoinShares is also using leading market data providers Kaiko and Messari to ensure the robustness of the index.
As of its last re-balance on 30 April, crypto assets comprise 31.75 per cent of the index, in five equally weighted constituents, and gold comprises the remaining 68.25 per cent.
The index is 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 index as an investable benchmark in its passive products business, under the leadership of CRO Frank Spiteri, who joined CoinShares following his tenure at WisdomTree, where he was former head of European distribution.