2020-5-27 19:00 |
Many gold investors are not endorsing Bitcoin as an investment option. Nevertheless, digital asset manager CoinShares launched an index that tracks gold and five crypto assets. CoinShares’ CGCI is EU BMR Compliant Earlier on Tuesday, CoinShares launched CoinShares Gold and Cryptoassets Index (CGCI). It is promoted as the first EU Benchmark Regulations (EU BMR) compliant index for the crypto industry that merges gold and crypto assets. The index can be monitored on Bloomberg Terminals and Refinitiv. The goal of the new index is to offer exposure to digital assets while boosting average returns and smooth volatility. The CGCI combines the high volatility of cryptocurrencies, the low volatility of the precious metal, and the almost inexistent correlation between the two. However, during global crises, both gold and Bitcoin might be regarded as reliable safe-havens, which makes a case for a temporary correlation. Still, the index aims to give institutional investors access to more effective risk control to crypto assets by leveraging the stability of gold. While there are several crypto-oriented indexes that offer exposure to multiple crypto assets via capitalization weighting, most of them cannot boast genuine risk diversification given that there is a high correlation among cryptocurrencies. As of the beginning of May, crypto assets comprise 31.75% of the CGCI in five equally-weighted components, and gold comprises the remaining 68.25%. Performance of Bitcoin, Gold, and the CGCI index (source: https://coinshares.com/investment-products/index-strategies) CGCI Might Boost Crypto Adoption Among Institutional Investors Institutional investors have always been welcomed to the crypto industry, as they have the potential to push the market to new levels. However, Chainalysis found out that whales had driven the Bitcoin crash in mid-March. Thus, there is much room for institutions to come back, especially when COVID-related restrictions are lifted. CoinShares hopes that its index bodes well for the image of the cryptocurrency market and will bring more professional investors. The company’s executive chairman, Daniel Masters, commented: “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.” CoinShares has conducted academic research in collaboration with Imperial College London to figure out how gold and crypto assets would work together in terms of risk distribution. Professor Will Knottenbelt, who leads the Imperial College Centre’s Cryptocurrency Research and Engineering unit, explained: “The CGCI is the product of nearly 2 years of research, development and experimentation conducted by Imperial in close collaboration with CoinShares.” CoinShares is now thinking about turning the index into an investable benchmark as part of its passive products business. Featured image from Shutterstock.
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