Bitcoin and other cryptocurrencies are set to have their own index in 2021, much like ASX shares do. Here’s what that means
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Most investors are probably familiar with the concept of an index. It’s what we use to measure the overall performance of the share market at any given time or day (or year for that matter). An index serves as a very useful barometer on how the broader market is performing and moving.
That’s why the first financial statistics you’re likely to see on an Aussie news bulletin’s business report each night usually relate to the S&P/ASX 200 Index (ASX: XJO) or the All Ordinaries Index (ASX: XAO). In the case of the ASX 200, this index measures the performance of the largest 200 companies on the ASX, weighted to market capitalisation. With the All Ords, it’s the largest 500 companies.
Over in the United States, it’s a similar story with the Dow Jones Industrial Average Index (DJX: .DJI), S&P 500 Index (SP: .INX) and Nasdaq Composite (NASDAQ: .IXIC). The Dow measures the performance of 30 individually selected shares on the US markets. The S&P 500 is more similar to our All Ords in that it measures the performance of most of the 500 largest companies listed on US markets. The Nasdaq is a little different in that it only includes companies that list on a certain exchange (the Nasdaq), but works in a similar manner to the S&P 500 in terms of weightings and so on.
But indexes don’t just measure shares (albeit stock indexes remain the most popular indexes to track). There are indexes for almost anything you can think of. For example, the Bloomberg AusBond Composite Index tracks a basket of bonds issued by the Australian Government. The S&P GSCI Crude Oil Index tracks the price of crude oil. You get the idea.
But a new type of index is set to be joining this throng, if reporting from Reuters is to be believed.
Bitcoin set to be indexed
Reuters reports that S&P Global Inc (NYSE: SPGI), the company behind the ‘S&P Indexes’, is set to launch a cryptocurrency index for the first time ever. 2021 will reportedly see the launch of this new index, which looks set to track “more than 550 of the top traded coins”. This will likely include the cryptocurrency posterchild Bitcoin. But it will also probably include popular ‘altcoins’ like Ethereum, Ripple, Litecoin and Bitcoin Cash.
S&P Global is apparently working with a New York-based virtual currency company – Lukka – in this endeavour. The two companies issued a joint statement on the matter, which stated the following:
S&P’s clients will be able to work with the index provider to create customized indices and other benchmarking tools on cryptocurrencies… S&P and Lukka hope more reliable pricing data will make it easier for investors to access the new asset class, and reduce some of the risks of the very volatile and speculative market.
Reuters also quotes Peter Roffman, the global head of innovation and strategy at S&P Dow Jones Indices as saying:
With digital assets such as cryptocurrencies becoming a rapidly emerging asset class, the time is right for independent, reliable and user-friendly benchmarks.
Bitcoin has been generating headlines again this year due to massive price appreciation. Over the past year, bitcoin has increased by more than 150% in US dollar terms.
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