Significance of IC15: India’s first crypto index

How is IC15 manufactured?

Cryptowire formed an indexing committee of domain experts, industry practitioners and academics to select cryptocurrencies from among the top 400 coins in terms of market capitalization. The eligible cryptocurrency must be trading at least 90% of the days during the review period and be one of the 100 most liquid cryptocurrencies in terms of trading value. Also, the cryptocurrency should be in the top 50 in terms of circulating market capitalization. The committee will then select the top 15 cryptocurrencies. The index will be reviewed quarterly.

What is its importance?

According to Cryptowire, IC15 can be replicated to create index-linked products such as index funds or exchange-traded funds (ETFs). Typically, the performance of a mutual fund scheme is assessed with reference to a benchmark, which could be the Nifty or the Sensex Total Return Index. IC15 is the first index in India that can act as a benchmark of the underlying cryptocurrency market and a performance benchmark for fund managers. In addition, robo-advisors, who provide financial advice with moderate to minimal human intervention, can use this index to create investment products at a low cost.

How does IC15 correlate with other market indicators?

The base value of IC15 on 1 April 2018 was 10,000, which means that the index has increased by 615% to 71,475.48 as of 31 December 2021. IC15 is up 138% in 2021 compared to 24% return by Nifty 50, Gold by -3%, and 27% by S&P 500. The index has less correlation with other asset classes – gains in IC15 will not reflect gains in other asset classes.

Can Index-Based Crypto Investing Reduce Risk?

Index investing can be an effective way to diversify against risks because a fund invests in a basket of assets against a limited number of coins. However, index-based investing cannot completely remove the risks associated with investing in crypto assets. For example: IC15 saw a 50% drop in 2018, while other asset classes saw a maximum drop of 3-4%. Furthermore, Bitcoin and Ethereum have a combined weighting of 77% in the index, making it highly vulnerable to any volatility in these two coins.

Can crypto funds be launched in India?

Securities and Exchange Board of India chairman Ajay Tyagi recently asked mutual fund houses not to launch crypto-based funds until the Center comes up with clear rules. This means that asset management companies will not be able to launch crypto funds based on IC15 right now. However, in the absence of any regulations, crypto platforms can offer products based on the index. Global crypto investment platform Mudrex last year launched a coin set-crypto fund based on topics such as decentralized finance or market cap.