Ask HN: Thoughts on Cryptocurrency Indices?

5 points

8 years ago

Cryptocurrency indices typically take the top 20-30 cryptocurrencies by market cap and apply one of these 3 different methods.

  1. Weighted proportionally by market capitalization 
  2. Weighted proportionally by market capitalization but capped at a certain % 
  3. Weighted by square root of market capitalization

Proportionally weighting makes the index vulnerable to a s single large constituent.

Capped and other weighting methodologies theoretically should diversify risk and reduce volatility. But if there is strong positive covariance between coins, then volatility is not necessarily being reduced in the index as a whole.

What do you guys think? I gave it my best shot and blogged about it here:

https://medium.com/hodlblog/hodlbot-cryptocurrency-investing-on-autopilot-dce2e4c9a7f7

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