From Bitcoin to Multi-Coin: The Formula for Choosing a Winning Digital Asset Index for Investors

The S&P 500 is frequently viewed as a barometer for the overall health of the US stock market by analysts, journalists, and investors. With the recent market momentum, crypto indexes will soon be held in the same regard.

As more investors hold digital assets in a diversified portfolio, it’s in the interest of everyone in the industry to create the strongest possible crypto indexes: Doing so will capture not only the value of individual bull rallies, but the overall story of how digital assets are finding their way into the mainstream.

While some investors may indeed choose to invest, the impact of a successful index creates a far greater impact and pull effect than only financial investment.

A strong index will show that crypto has a large addressable market, inspiring more developers and entrepreneurs to found startups in the field. A strong index will portray the sector's institutional adoption, encouraging competitors to also launch their own blockchain or crypto projects. A strong index will even drive consumer adoption by showing end users that digital assets and blockchain technology have compelling, real world uses.   

To create a strong index, the institution should create one built to reflect market trends over the long-term, even if this may differ from the assets that the public is fixated on at the moment. The ideal index is the one that not only boasts of high numbers but ultimately attracts the most stakeholders into our industry.  Here's what investors need to know when choosing the best crypto index for their objectives.

Balancing the bipolar nature of crypto 

When crypto first started, the sector was unipolar. If you looked at any key metric, such as market capitalization or trading volume, one digital asset would stand out from all the others: Bitcoin. 

Later, when DeFi and NFTs grew in popularity, the ecosystem became bipolar, revolving largely around both Ethereum and Bitcoin. Despite this fact, some indexes still strongly favor either Bitcoin or Ethereum, often due to their makers’ philosophical beliefs and prejudices about cryptocurrency. Rather than represent the sector as we believe it should be, we look at it as it currently is.

Our two biggest coins are Ethereum ETH/USD and Bitcoin BTC/USD, and they are in rough balance with one another, with BTC at 40.89% and ETH at 36.82%. Their total composition, at 77.71%, aligns with the Pareto principle that roughly 80% of results will be driven by 20% of the inputs—in this case, index performance from the two most widely used coins. 

Strategic choices for altcoins 

Cryptocurrency indexes are often based on a primary benchmark, such as market capitalization, trading volume, or liquidity. The problem with this approach to selection and weighting is that these benchmarks change quickly. If a company chooses its index based on the top coins by market capitalization at a single point, it will be left with many assets that rapidly lose relevance. 

To this point, the best indexes are usually built on an in-depth analysis of each coin's past and current developments to determine whether it will play a critical role in crypto in the years to come. No institution wants flash-in-the-pan coins in their index. 

Here are some altcoins that frequently appear in especially well-balanced and strong indexes: 

• Solana – Solana is attracting institutional support (i.e., PayPal, Franklin Templeton, and Citibank) and meme coins due to its community engagement, low fees, and high activity. 
• ChainLink – ChainLink is making it easier to layer existing technologies, such as SWIFT, onto its blockchain, driving institutional adoption from enterprises who want an easier path into web3, such as for real world asset tokenization. 
• Avalanche – Avalanche has partnered with Citi and JPMorgan for real world asset solutions due to its focus on compliance and security, two attributes that will become increasingly important as the crypto regulatory landscape evolves. 
• Ethereum – In addition to being the largest coin alongside Bitcoin, Ethereum also has the highest locked in value and number of developers: There is a network effect to create more innovations within its ecosystem. 
• Ripple – Ripple is one of the first altcoins to capture market share from November 2013 to January 2014, when Bitcoin dominance waned, and it continues to boast strong longevity almost ten years later.  

In providing an analysis for these coins, we hope to be consistent with our deepest beliefs: Indexes should be as open in their methodology as they are strategic to investment objectives.

Represent broader market trends 

Single-coin indexes are commonly used in exchange-traded funds (ETFs). Some are built around Bitcoin, others Ethereum, and others emerging challengers like Solana. However, we also believe that the ideal crypto index must include a multi-coin basket of assets.

This decision reflects how investors will look at crypto in the years to come. Previously, crypto investing seemed no different from gambling: Retail investors often placed their bets on a single coin and rode its highs and lows to win or lose. 

As cryptocurrency matures, investment approaches will, too. Investors will likely favor multi-coin indexes that capture the sector’s overall growth and can be predicted through broader market trends. For example, the present bull rally is partly driven by President Trump’s election over Harris in the United States: Investors are anticipating a favorable regulatory climate around digital assets. In this environment, investors will want exposure to the sector as a whole rather than exclusively individual coins. 

Beyond 2024 

The best indices refine their methodologies and adapt to market shifts so that the index remains a benchmark for innovation and trust among investors and enterprises. We believe that indexes—like the assets they represent—should be transparent, forward-thinking, and built to last.

Given how strong the crypto market has emerged in 2024, it’s more important than ever for investors to choose agile, winning indices for their investments. As market volatility rises in a bull cycle, these indices can keep investors calm, focused and poised for performance. 

There are hundreds of different variables that investors can look at when evaluating crypto indices—it is easy to get lost in this data. To cut through the noise, investors should focus on three criteria above all else, using the perspective of time.

First, they must go back to the very beginning and examine the selection criteria for different coins, which should consist of multiple dimensions rather than a single, determining one like trading volume. Second, investors should evaluate the index's criteria to date, especially against bull and bear cycles: How has the index performed vis-a-vis overall market trends? 

Finally, investors should break down the composition of coins and their various weights to determine if it is representative of the sector's future. Investors who undertake this exercise will inevitably choose an index greater than the sum of its parts: It will inspire confidence in other stakeholders, document the rise of crypto, and above all, create value.