What is the CGBI?
Alternative Asset Index
Low Correlation + Volatility Harvesting
Why Gold + Bitcoin?
Volatility Weighting + Monthly Rebalancing
The CoinShares Gold and Bitcoin Index
Diversified Exposure to Alternative Assets
The index methodology maintains as basket of Bitcoin weighted against gold. The weights between Bitcoin and gold is determined based on a weighted-risk allocation scheme.
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.
CGBI vs Bitcoin vs Gold
The CGBI introduces an adapted version of the Shannon’s Demon theory to control and benefit from the high volatility produced by Bitcoin.
The Shannon’s Demon theory is a strategy where two uncorrelated assets -at least one of which is highly volatile (e.g. Bitcoin)- are periodically rebalanced to maintain an ideal weight allocation. We find a Bitcoin–gold 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 CGBI 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 Bitcoin 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 Bitcoin.