Index

How does a crypto index work?

Crypto indices are typically composed of a set number of cryptocurrencies – for example, the top 10 by market capitalization or a curated group of tokens focused on a specific sector like DeFi or gaming.

There are two main types of index weighting:

• Equal-weighted index – each cryptocurrency has the same influence on the final value.

• Market cap-weighted index – larger assets have a greater impact based on their market capitalization.

The index value is recalculated regularly based on the price movements of its components.

Why are crypto indices useful?

• Diversification – Exposure to multiple assets reduces reliance on a single cryptocurrency.

• Clarity – A single number simplifies market monitoring and decision-making.

• Market overview – Acts as a benchmark to evaluate the overall performance of specific sectors or the entire market.

• Passive investing – Indices can serve as the basis for automated or low-maintenance investment strategies.

Risks and limitations

While indices offer many advantages, they also come with certain risks:

• Volatility – Crypto remains a highly volatile space, even when diversified.

• Component changes – Index composition may shift over time, affecting performance.

• Low liquidity tokens – Inclusion of lesser-known coins can distort the index’s accuracy or stability.

Examples of crypto indices