Billionaire Michael Novogratz, who has invested a third of his fortune in cryptocurrencies, on May 9, 2018 launched a crypto index in partnership with Bloomberg to track the “largest, most liquid portion of the cryptocurrency market.” The index, which is called Bloomberg Galaxy Crypto Index (BGCI), tracks the top 10 cryptocurrencies and is weighted by market capitalization. It will be rebalanced monthly.
The index’s composition mirrors the skewed nature of cryptocurrency markets: the top five coins account for more than 90% of the overall weight of the index. Bitcoin and ethereum, the two largest by market value, each represent 30% of the gauge, while Ripple, Bitcoin Cash and EOS round out the top five. (See also: Who Are The Top 5 Bitcoin Millionaires?)
“The index brings our rigorous approach to index construction to cryptos and will provide investors with a transparent benchmark to gauge the performance of the broader market,” said Alan Campbell, global product manager for Bloomberg Indices.
First institutional-grade benchmark for crypto market
While there has been a profusion of indexes claiming to track cryptocurrencies, BGCI claims to offer the “first institutional grade benchmark for the cryptocurrency market.” “You are starting to see more institutional participation and what they’re looking for is this architecture,” Novogratz told online publication Business Insider. “Here’s an index that will feel like the S&P 500 in a few months, that people can benchmark themselves against.” (See also: Crypto Index Fund Delivered 45% Returns In First Two Months).
Novogratz’s quote comes amid a backdrop of increasingly positive news for institutional investors from the cryptocurrency ecosystem. Goldman Sachs Group Inc. (GS) recently confirmed plans to begin bitcoin trading plans in the next few weeks. Intercontinental Exchange, NYSE’s parent, is also reportedly making plans to open up a trading outfit for cryptos. For their part, cryptocurrency exchanges have begun cleaning up their act and may be amenable to regulation. This is a stark change from last year, when institutional investors shied away from an increasingly hack- and scandal-ridden cryptocurrency ecosystem. (See also: How Goldman's Bitcoin Bid Could Change The Industry).
But there are still problems to be overcome. For example, investors are still struggling to define a place for bitcoin in their portfolio given its unique nature and seemingly tenuous correlation with other assets.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.01 bitcoin.