How the Top 1% Covers Crypto

Bitcoin’s returns in the past decade have attracted enormous interest and investment, especially since the pandemic crash in 2020. As the market was flooded with cash, questions about the value of the dollar together with the search for alternative sources of return attracted investors to bitcoin.

Source: CoinDesk Indices. Data from Bloomberg. All data is monthly ending 12/30/2022. XBX incepted Nov. 3, 2014.

The growth in the digital asset market expanded as investors looked to participate in the technological innovation of a lifetime. Today, the use cases and technology reach far beyond bitcoin, and by some measures, there are more than 10,000 digital assets from which to choose. So, understandably, knowing how to participate in the simple growth of the new economy has become more complex.

At CoinDesk Indices, we have applied the most well-known, reliable, and time-tested index concepts to digital assets to deliver a simple representation of the market so that investments can grow with it. The CoinDesk Large Cap Select Index (DLCS) chooses between five and ten of the largest, most liquid digital assets and market cap weights them to measure most of the crypto market in the simplest way possible. At present, just five assets—Bitcoin, Ethereum, Cardano, Polygon and Solana—cover more than 60% of the digital asset market cap as measured by the CoinDesk Digital Asset Classification Standard (DACS).

Since it is important to filter the top digital assets appropriately in what can seem like the wild west of an emerging market, the DLCS constituents are chosen according to its index methodology, which aims for investability by including digital assets with sufficient trading on eligible exchanges that are reliably safeguarded by certain custodians. The index is reconstituted quarterly, and only adds new assets from a watchlist that requires those assets to have passed all eligibility criteria for a full prior quarter prior to their inclusion. This reduces turnover and allows for more efficient operations.

Although the DLCS is currently highly concentrated, this is typical among market-weighted indices in nearly all asset classes. DLCS helps investors who are looking for a high-quality mix of digital assets beyond bitcoin get simple market exposure.

Exhibit 1: DLCS Weights and Constituents as of January 6, 2023:

Since its launch on April 4, 2022, the DLCS has lost 57.2% (data ending Jan. 20, 2022 ). This performance reflects the difficult environment of the time due to the combination of macroeconomic factors such as inflation and rising rates and the impacts of crypto-specific events such as Terra/Luna, Voyager, 3AC and FTX. Since the FTX’s collapse, DLCS has recovered 35.4%, and it is up 29.3% year-to-date in 2023 (data ending Jan. 20). Optimism on decelerating inflation and smaller rate hikes coupled with digital asset decentralization, interoperability and infrastructure is driving the rebound. The market will likely continue to capitulate in the short term and grow in the long term. DLCS will measure it all in real-time along the way.

For additional information about DLCS please click here.