Bloomberg, the biggest financial market data provider and index maker, recently announced its plans to spread its influence into the world of cryptocurrency by creating a Bloomberg Galaxy Crypto Index (BGCI). This index will have a simple duty: to track the performance of the largest and the most liquid parts of the cryptocurrency market. The index will be created in cooperation with Galaxy Digital Capital Management, a digital assets trading bank led by billionaire and an avid crypto supporter Michael Novogratz.
Novogratz has been making a name for himself in the world of cryptocurrency, claiming that every serious investor should have at least 1% or 2% of his portfolio in crypto and that NYSE will start trading crypto in less than six months. He hopes to make his company, Galaxy Digital Capital Management, the “Goldman Sachs of crypto”.
The BGCI itself will be a market-cap weighted index, looking to include only the biggest players when it comes to their market cap. Highest capped currencies will have a higher weight in this index. At its launch, the index will be made out of following currencies, in following percentages:
Bitcoin 30.00%, Ethereum 30.00%, Ripple 14.14%, Bitcoin Cash 10.65%, EOS 6.11%, Litecoin 3.77%, Dash 1.67%, Monero 1.66%, Ethereum Classic 1.00% and Zcash 1.00%.
To quote Bloomberg: “The index constituents are diversified across different categories of digital assets, including stores of value, mediums of exchange, smart contract protocols, and privacy assets.” The index will be rebalanced and reevaluated on a monthly basis, with 30% being the highest that a single constituent can command in terms of weight and 1% the lowest. And while some praised the selection of cryptos, others were less enthusiastic, with reddit user CryptoPapi saying:
“There’s essentially no reason for litecoin, bitcoin cash or ethereum classic to exist. They will be eventually displaced by more unique projects with growing adoption. Their inclusion only proves Bloomberg has no idea what they are evaluating or how traders in this market work. For this fundamental reason alone, I expect this index to perform poorly, long term.”
The joint official statement says:
“The BGCI utilizes a rules-based methodology and data from sources that have passed both Bloomberg and Galaxy Digital Capital Management’s due diligence processes.” The “sources” however aren’t named and we don’t know much about the due diligence process itself, except that it’s market cap-based.
The index was launched on May 3rd and had a base value of 1000. It will function in a manner similar to Dow or S&P 500, where a single value will indicate how well the market players are performing. The index will not come with an index fund, meaning that Bloomberg won’t be taking you money and investing it for you. The index is purely a tool for measuring the market performance. The market already has a few indexes that track its performance, BGCI is an important milestone for it as it represents the first official institutional benchmark for the performance of cryptocurrencies.
Bloomberg and GDCM officials also felt the move is groundbreaking with Alex Campbell of Bloomberg saying:
“Today’s launch of the Bloomberg Galaxy Crypto Index reflects our clients’ growing interest in cryptocurrencies.The index brings our rigorous approach to index construction to cryptos and will provide investors with a transparent benchmark to gauge the performance of the broader market.”
Of course, the outspoken Michael Novogratz, CEO and Founder of Galaxy Digital Capital Management, added his two cents:
“The Bloomberg Galaxy Crypto Index brings unprecedented transparency to the crypto markets. We are excited to help drive the decentralized revolution forward through the creation of BGCI.”
The index should serve less as a tool for tracking market performance and more as a tool for giving cryptocurrency markets legitimacy. Institutional interest means more commercial trust and exposure. Other institutions will follow suit and this will lead to higher rates of adoption and higher crypto prices. This could ultimately be of immense help in launching the crypto markets towards the moon.