VanEck Explains Its New Cryptocurrency Indices

November 20, 2017

Gabor GurbacsThomas Kettner

Gabor Gurbacs                    Thomas Kettner

Earlier this month, MV Index Solutions (MVIS), in partnership with CryptoCompare, launched a series of digital assets indices, which they called "the first family of benchmarks for the digital assets market."

The series includes single-asset indices, such as the MVIS CryptoCompare Bitcoin index, and multiple digital asset indices, such as the MVIS CryptoCompare Digital Assets 25.

MVIS is a subsidiary of VanEck, an issuer of more than 50 U.S.-listed ETFs. VanEck filed for a bitcoin-linked ETF in August before pulling that filing a month later after the Securities and Exchange Commission asked the firm to wait until bitcoin futures become a reality. spoke with Gabor Gurbacs, director of digital assets strategy at VanEck, and Thomas Kettner, managing director at MVIS, to discuss the new suite of digital asset indices and the outlook for digital assets in general. Why did you create these digital asset indices?
Gabor Gurbacs:
You didn't have a way to monitor those markets before. When you wake up in the morning, you no longer have to ask, "How did the crypto market do?"
These reference indices really didn't exist, so that's why we came up with this idea to be the first to offer these composite indices that meet the strictest industry requirements, are transparent, investable, and easy to reference when people wake up in the morning. What similarities and differences are there between creating a digital asset index and a stock index?

Thomas Kettner: Digital assets trade 24/7 on a lot of different exchanges, so it's a little more difficult to find the fair value price. Stock indices usually focus on one stock exchange. For example, with the S&P 500, you wouldn’t include the pricing of the same stocks when they trade in Tokyo or Frankfurt. Those listings are not considered as main listings or as important.

Secondly, events are very different in the digital assets market than in the stock market. You don’t see corporate actions like dividends and rights issues. Instead, you have things like hard forks.

Another difference is with rebalancing. In stock market indices, we shuffle the components once a year and the weights once a quarter. Because the digital asset market is more infant and more volatile, we try to do that each month.

On the other hand, the way we set up the capping scheme is very similar to stock indices. We want to cover the market, but at the same time we want some diversification. What investment products do you see being tied to these indices in the future?

Gurbacs: We could see futures, ETFs and many other products.

The Digital Assets 5 is excellent for structured products and focused exposures if you want to own things other than bitcoin, ethereum and litecoin that you can get easily on Coinbase.

The Digital Assets 10 and the Digital Assets 25 are excellent for traditional basket products like ETFs and ETNs [exchange-traded products]. If you’re one of those folks that think bitcoin is the dinosaur in the space and you don't want to pick your winners, then those make sense. I tend to think of the Digital Assets 10 as the Dow and the Digital Assets 25 as the S&P 500. VanEck filed for a bitcoin ETF in August before pulling that filing only a month later. What's your take on when we can expect the first U.S.-listed bitcoin ETF to come to market?
VanEck is closely monitoring the development of the digital assets futures market, and we’re working with all the regulatory organizations, exchanges and investment partners to try and bring more understanding to the markets before it goes anywhere.

Understanding is key in these markets. Once major institutions and regulators are on the same page and feel comfortable about certain key parameters such as global price discovery, custody and governance, there's a higher probability for an ETF. How should investors be approaching the digital asset space right now?
Digital assets have the potential to integrate with the broad economy and become an investable asset class. Right now, it's really hard to pick the winners. It's important to monitor and gain a greater understanding of this new, emerging asset class.

If you compare digital assets to gold, there’s a lot of room to grow. Digital have a combined value of $200 billion. The total value of gold is something north of $7 trillion.

Contact Sumit Roy at [email protected]

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