Bitpanda launches the worlds first real crypto indices - The Bitpanda Crypto Index. Bitpanda has launched 3 new indices BCI5, BCI10 and BCI25 which mimics the underlying cryptocurrencies and automatically rebalances on a monthly basis. The launch some just a week after the announcement of a $52 mio. Series A funding round led by Peter Thiel and his Valar Ventures
The Bitpanda Crypto Index is very similar to normal indices known from traditional finance.
An index is a portfolio of stocks, bonds or other assets, which mimics the price of the underlying asset. Dow Jones is a stock index which mimics the top 30 stocks listed on the New York Stock Exchange and Nasdaq.
The Bitpanda Crypto Index consist of cryptocurrencies also called components which all have a weight in the index.
Below you can see an example of the Bitpanda Crypto Index 10 (BCI10) components and weight as they were at launch October 6th, 2020.
|Bitcoin Cash (BCH)||4.80%|
The Bitpanda Crypto Index is targeted at the crypto investor who is new in the crypto space that wants to buy crypto but with a lower risk appetite. It diversifies your exposure to single crypto assets and thereby lowers your risk. That being said, for the crypto market crashes the Bitpanda Crypto Index also drops, as it is the underlying assets that determine the price.
One thing you need to be aware of is the index rebalancing. If one or more of the underlying assets increase a lot in price compared to the others, then the index would get out of balance and this would give you a high exposure to that individual coin. Therefore the Bitpanda Crypto Indices uses automatic rebalancing which means that it would automatically even out the imbalance. The rebalancing happens once a month and is calculated by Bitpandas external partner.
What actually happens when the rebalancing takes place is that the index is being monitored and reviewed by the external partner. When the rebalance takes place, there will be automatic buys and sells in the background, maybe some coins are removed and others are added. This usually happens on the last trading day of the month.
Due to the rebalancing every month nobody will know exactly how the index will look next month as new cryptocurrencies could enter top 5, top 10 or top 25. However you can always see the current composition of the Bitpanda Crypto Indices in your Bitpanda account.
When the rebalancing takes place, buy and sells will happen. Those buys and sells will have fees associated with them and this is how Bitpanda makes money on the Bitpanda Crypto Index.
The Bitpanda Index can be traded on the Bitpanda platform and users can benefit from lower fees by using the Bitpanda Ecosystem Token (BEST) and receive a 25% fee reduction on the purchase of the Bitpanda Crypto Index as well as on the rebalancing events.
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