Cryptocurrency Indices: What Are They?
If you are at all familiar with traditional finance terms you have likely heard the term “index” before as well as the two different plural versions of index (indexes and indices). Unless you are involved in personal finance through stock ownership, or you work in the finance industry, you may not know exactly what indices are or how they are used.
Indices are measurements of something. They are most often associated with the stock market. In the stock market, indices are used to track the performances of a collection of specific securities. They are often used to track a group of publicly traded stocks, bonds, or consumer prices for everyday goods and services. Indices are often compared to a ruler since their primary purpose is to measure the performance (price) of something.
Stock Market Indices
Stock Market indices are often used to indicate trends in the global economy or in economies specific to different countries. The most well-known ones in the U.S. are the S&P 500, The Dow Jones Industrial Average, and the Nasdaq Composite, and they are also the most widely followed. However, these are only three of the estimated 5,000 that are included in the U.S. equity market. Stock markets around the world use indices to track prices of baskets of securities.
What Is An Index Fund?
An Index Fund is a fund with a portfolio that is designed to track the different securities that make up a specific index. In other words, an index fund is a portfolio of stocks or bonds that is designed to mimic the make up and financial performance of a specific index. Different index funds track different indices, providing investors with a variety of investment choices. Index funds are bought and sold for the price set at the end of each trading day. Index funds are purchased directly through a fund manager.
What Is An Exchange-Traded Fund (ETF)?
An Exchange-Traded Fund, or ETF, can be traded on an exchange in the same way as a stock, meaning that, unlike an index fund, it can be bought and sold at any time during the stock market trading day.
In an ETF, the fund provider owns the assets that they wish to include in the fund. They then design the fund to track the performance of the assets, and they sell shares of the fund to investors via an exchange. Shareholders own however many shares of the ETF they have bought, but they don’t own the underlying assets that make up the fund.
Indices and ETFs are most commonly associated with the stock market, but they don’t only exist there.
Crypto Indices And ETFs
Due to the increased popularity of cryptocurrencies, crypto indices and ETFs have started to become more prominent, especially as more institutions have shown interest in the industry and wealthy individual investors are also showing increased interest. Some of the same companies that developed popular stock indices have developed or are currently developing indices for the cryptocurrency market as well.
Traditional Finance Companies Offer Cryptocurrency Indices
The S&P has developed an index called the S&P Cryptocurrency Broad Digital Market Index which tracks 243 digital assets in addition to other cryptocurrency indices. Nasdaq launched the Nasdaq Crypto Index (NCI) which measures the performance of a diversified pool of digital assets in February 2021. Nasdaq also launched bitcoin and ethereum indexes in June 2021. The New York Stock Exchange also launched a bitcoin index back in 2015.
Although these companies are some of the most well-known in the traditional financial markets, there are other companies that have a more significant presence in the cryptocurrency and blockchain space that offer a wider variety of cryptocurrency indices.
VegaX offers the Bitcoin BuyWrite Index (VBXM) and the Ethereuem BuyWrite Index (VEXM) to track the two most popular cryptocurrencies, but it also offers a variety of other indices that are focused on specific segments of the cryptocurrency market. These other indices include the Non-Fungible Token Index (VNFTX) which tracks the top 5 NFT tokens of financial protocols and the DeFi Core Index (VDCX) which tracks the top 5 DeFi governance tokens of financial protocols by market capitalization.
VegaX is also in the process of developing and adding additional indices to its growing list. In addition to indices VegaX offers two investment strategies, one for bitcoin and one for ethereum, which allow clients to earn better returns on their investments in those cryptocurrencies.
Cryptocurrency and Blockchain ETFs
Cryptocurrencies and blockchain have started to become a focus of ETFs. For example, Nasdaq offers the Siren Nasdaq NexGen Economy ETF (BLCN) which tracks the Nasdaq Blockchain Economy Index which follows the performance of companies involved in developing, researching, supporting, innovating, or utilizing blockchain technology. As indices become more prevalent in the industry, it can be expected that crypto and blockchain ETFs will become more popular across the globe as well.
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