Detailed ICONOMI Cryptocurrencies Index (ICNX) update
As described in our shorter update of 27 October 2016 triggered ICNX rebalancing, bitcoin has been showing a strong appreciation during the second half of October. Consequently its weight surpassed 20% of the total ICNX, which triggered an immediate index rebalancing on 27 October.
REBALANCING OVERVIEW
With rebalancing we re-set the the weights of included cryptoassets, but as per ICNX methodology we also changed ICNX composition. We have added the GameCredits (GAME) token and removed DigixDAO, Storjcoin X and Bitcrystals.
ICNX CHANGES
What was removed
We have removed DigixDAO, Storjcoin X and Bitcrystals, as their daily average volumes for the last 30 days were below $50k. They can return to ICNX again, once their monthly volumes rise above the minimum threshold and if ICONOMI still considers them viable in the long term.
What was added
We have added the GameCredits (GAME) token to the ICNX, and would like to briefly recap its underlying concept.
GameCredits is a multi-platform gaming currency derived from Bitcoin. It aims to replace existing in-game purchasing options and mechanisms. GameCredits API offers developers zero implementation costs and low fees when purchase volume increases, enabling them to focus on quality meta-game content and play-game mechanisms instead. A percentage of the profit will go to the foundation to be used for further development and, as they noted, facilitate investment. Turbocharged: Tokyo Grand Prix and Panda Commander are two games that already use GAME, with several more in the pipeline:Fragoria, Ring 13: The Curse of Nakamoto… GameCredits’s team is already cooperating with over 100 developers. There are over 2 billion gamers in the world, and GAME tries to offer them the best user experience through fast, easy and reliable transactions and a stand-alone wallet. There will be a total of 84 million GAME coins, which can easily be exchanged for fiat and other cryptocurrencies on exchanges like C-Cex, Bittrex and Poloniex.
ICNX Q & A
In the last month we have received several questions regarding ICNX, and would like to address them.
What do you have to say about the recent WIlly Woo blog posts on alt cryptocurrency index funds?
Although the study being carried out by the blog author is analytically well written, it misses one key point. The majority of the altcoins that have been analysed do not meet ICONOMI eligibility criteria. Most of the top altcoins didn’t have and still don’t have specific underlying added value. We believe we are only at the beginning of the introduction of proper “app tokens” into the new economy.
What would stop people from just copying the moves the index makes instead of buying in?
Buying into the index fund will be much easier and faster than establishing the same portfolio on your own, especially considering the monthly rebalancing of portfolio, which is time-consuming and not attractive to the everyday investor, but will happen automagically for index fund investors. Depending on your exchange fees, it might even be cheaper (trading fees are shared across the fund). Buying into the fund will also resolve issues regarding managing and securely storing many of the included cryptocurrencies.
Will you be sharing the index algorithm?
The broad methodology is shared on https://icnx.iconomi.net, however we will not publish detailed calculations of each component weight. Note that weightings are market cap based, with some proprietary logarithmic adjustments.
Do you plan to add new altcoins to your index?
Yes. All currencies that meet our inclusion criteria will be included in the ICNX. Expect many more ICNX constituents once the market becomes more established.
How will the process of adding new altcoins to index work/be realised?
At each rebalancing period the Investment Committee makes a decision regarding the introduction of new coins to the index, as well as the deletion of coins which are no longer considered appropriate or that do not meet other eligibility criteria. The Investment Committee votes on changes to structure.
Will the ICNX be traded on external exchanges like forex?
ICNX is just an index. Investment vehicles based on the index, such as our ICONOMI.INDEX fund, will be traded on major cryptocoin exchanges once they are listed.
Why is there a 15% max cap on any crypto?
Many traditional indexes (like S&P 500, Russell 2000, NASDAQ-100) limit a single instrument’s maximum weight to 10%. ICNX’s goal is a realistic representation of crypto markets while keeping risk as diversified as possible. Since bitcoin represents such a big part of total crypto market capital, we decided to grant it a bigger weight — 15%. ICNX methodology and rules (see https://icnx.iconomi.net) state that each individual crypto is capped at a maximum of 15% of the whole ICNX structure. A 15% max cap allows for more influence but at the same time still prevents any single crypto from having an overwhelming influence on the index as a whole — proper diversification is therefore delivered. While this is true at the REBALANCING, it can move between monthly rebalancing. The weight of each crypto can grow as much as 20% of the total ICNX value, but not more, because we do not wish to have a dominant asset. ICONOMI’s goal is to have an index (later a fund) with a diversified risk. Currently, bitcoin’s price is rising, but the ICNX index is flat or going down slightly. Although, this seems inappropriate, fluctuations like this should level out over the longer term. While bitcoin is currently without any shadow of a doubt the number 1 crypto, we do not think this will be true in the mid/long term future. Rather than it being the only crypto, we see it as the most important value coin that will have the majority of trading volume, but that does not mean it will be the default choice for new businesses/business processes and next-gen technology developments.
Will you add Zcash to the ICONOMI index?
From what we have seen in the last day in terms of popularity, traded volume and market cap, Zcash will likely be included on ICNX. But not today, as per ICNX methodology token needs to be publicly traded for at least 2 months before it can be included.
We have already had some internal discussion on the topic of Zcash. Zcash will fit into the “Anonymity” category, where there is not yet a clear winner, so many tokens can share it (unlike the “Value” category“ where Bitcoin is a clear winner).
I miss (INSERT_A_NAME_COIN) in your ICONOMI Cryptocurrencies Index. Why haven’t you included it?
Most likely, the coin does not meet the requirements for inclusion, which are listed under the methodology of ICNX here https://icnx.iconomi.net. Most cryptos do not meet the average daily traded volume minimum of 50,000 USD or have market capitalisations below 1 million USD. Some of the coins that do meet those two requirements are, however, not included, as ICONOMI does not deem their concept viable for the long term.
As the index goes up, it becomes more attractive to investors. In order to buy it, investors sell their other holdings (coins). Since ICNX actually tracks these same coins, this might have a direct impact on the index itself. Is this something that can actually happen and act as sort of a mutual negative feedback (like a self-balancing)?
In between rebalancing periods, which occur at the end of each month, or more frequently (depending on the breaches of the limits imposed on the structure), the portfolio is balanced according to the price movements of the coins included in the index. The example you are describing is very realistic and this is why a fund is preferred in such cases, especially if you are not very aware of every potential move the market might make.
