Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2020 009

CRIX an Index for cryptocurrencies

Simon Trimborn
Wolfgang Karl Härdle

The cryptocurrency market is unique on many levels: Very volatile, frequently
changing market structure, emerging and vanishing of cryptocurrencies on a daily
level. Following its development became a difficult task with the success of
cryptocurrencies (CCs) other than Bitcoin. For fiat currency markets, the IMF
offers the index SDR and, prior to the EUR, the ECU existed, which was an index
representing the development of European currencies. Index providers decide on a
fixed number of index constituents which will represent the market segment. It
is a challenge to fix a number and develop rules for the constituents in view of
the market changes. In the frequently changing CC market, this challenge is even
more severe. A method relying on the AIC is proposed to quickly react to market
changes and therefore enable us to create an index, referred to as CRIX, for the
cryptocurrency market. CRIX is chosen by model selection such that it represents
the market well to enable each interested party studying economic questions in
this market and to invest into the market. The diversified nature of the CC
market makes the inclusion of altcoins in the index product critical to improve
tracking performance. We have shown that assigning optimal weights to altcoins
helps to reduce the tracking errors of a CC portfolio, despite the fact that
their market cap is much smaller relative to Bitcoin. The codes used here are
available via

Index construction, Model selection, Bitcoin, Cryptocurrency, CRIX, Altcoin

JEL Classification:
C51, C52, G10