CoinShares Gold and Cryptoassets Index (CGCI)
Diversified Exposure to Alternative Assets Volatility Weighting and Monthly Rebalancing Reduces Risk and Enhances Returns Superior Risk Profile Compared to Holding Gold or Cryptoassets in Isolation
What is the CGCI?
Alternative Asset Index
The CGCI provides risk-managed exposure to cryptoassets without extreme volatility. The unique construction of the index leverages the characteristics of the two assets β namely the extremely high volatility of cryptoassets, the low volatility of gold, and the low correlation between the two. The index, administrated by Compass Financial Technologies, is approved as EU Benchmark Regulations (EU BMR) compliant.
Low Correlation + Volatility Harvesting
Cryptoassets, such as Bitcoin, are being recognized as viable investments primarily due to their low correlation with traditional asset classes which can enhance risk-adjusted returns in a wider portfolio. Although cryptoassets experience high volatility, which can present risks, there are valuable benefits to be had through risk management, which the CGCI employs.
Why Gold + Crypto?
By pairing gold and cryptoassets in a way that accounts for their risk contribution, the index delivers a risk and return profile that is superior to holding gold or cryptoassets alone.
Volatility Weighting + Monthly Rebalancing
The index employs risk control tools and a monthly rebalancing mechanism to lower volatility and strengthen the portfolios resilience to unforeseen drawdowns during stressful crypto-market conditions, while generating superior risk-adjusted returns.
The CoinShares Gold and Cryptoassets Index
Diversified Exposure to Alternative Assets
Index Methodology
The index methodology maintains a basket of 5 equally-weighted cryptoassets weighted against gold. During each rebalancing date, which occurs monthly, the cryptoasset basket rebalances to include the top 5 eligible market cap weighted cryptocurrencies as of the time of rebalancing.
Meanwhile, the weights between the cryptoasset basket and gold is determined based on a weighted-risk allocation scheme.
We opt for a risk ratio that results to 80% of the total risk emanating from the crypto-basket component (Ξ± = 4) and ensures a good level of diversification. This accounts for a proper risk contribution and delivers a risk and return profile that is superior to holding gold or cryptoassets alone.
The index methodology was created from the research and experimentation conducted with Imperial College of London and with the EU registered benchmark administrator, Compass Financial Technologies to ensure a robust and benchmark compliant index.
Key Statistics
Index News & Announcements
CGCI vs Bitcoin vs Gold
The CGCI introduces an adapted version of the Shannonβs Demon theory to control and benefit from the high volatility produced by cryptoassets.
The Shannonβs Demon theory is a strategy where two uncorrelated assets -at least one of which is highly volatile (e.g. cryptoassets)- are periodically rebalanced to maintain an ideal weight allocation. Additionally, the theory of Equal Risk Contribution is generalized to allow for weighting according to a desired level of contribution to volatility. We find a cryptoβgold weighting based on Weighted Risk Contribution to be historically more effective in terms of Sharpe Ratio than several alternative asset allocation strategies.
The resulting expected growth rate of the CGCI is greater than the individual expected growth rates, while the variance of the returns is less than the individual variances. This strategy is well suited for cryptoassets due to its volatile nature and being an uncorrelated asset class. Gold was chosen on the other hand as an ideal candidate due to being much less volatile and having displayed very low correlation with cryptoassets.
Constituents Weights
Due to the persistent levels of correlation between cryptoassets, an equally weighted allocation model is employed within the cryptoasset basket. A group of 5 cryptoasset constituents allows for a certain degree of diversification in the cryptoasset market and ensures a strong enough liquidity pool to source the assets from. Furthermore, the monthly rebalancing of the cryptoasset constituents ensures proper tracking of the overall market and allows for replicability.
Gold was chosen due to its low volatility and correlation, high liquidity, and its ability to act as a hedge to traditional financial markets. It is also represented as the diversifying asset to balance cryptoassets and will overall have a higher allocation in the index weighting.
Together, the two baskets are weighted together using a volatility-weighting scheme which ensures that the higher risk asset will have less of an allocation in order to create a diversified exposure and limit the risks.