Multi Crypto

Ethereum loading an update

Ethereum Proof of Work Fork Explained

Ethereum Proof of Work Fork Explained 2000 1125 cryptonews@arxnovum.com

Earlier this month we wrote about the successful completion of the Ethereum merge on September 15th, 2020.  The Ethereum network has migrated from a Proof of Work (PoW) consensus mechanism to the less energy-intensive Proof of Stake (PoS) validation. Although important for the evolution of the second largest cryptocurrency by market cap, the merge event resulted in a large quantity of Ethereum mining hardware, primarily NVIDIA GPU cards, becoming obsolete.

The result of the merge means that there will be a loss of income and invested capital for the community of Ethereum PoW miners who have validated the blocks on the network since its inception. Following the merge, this community has collaborated their efforts into creating a Proof of Work (PoW) fork of the Ethereum network with the ticker symbol ETHW. This forked network allows the owners of Ethereum mining hardware to continue their mining activities in a similar fashion as they have done so with pre-merge Ethereum. 

A one-for-one distribution of ETHW tokens was initiated shortly after the completion of the merge. This means that all of the holders of Ether (ETH) are entitled to receive the quantity of ETHW. While all investors are entitled to receive the forked ETHW, the ability of investors to receive those assets is dependent on the custodian and exchanges’ assessment of the new network. The distribution of ETHW tokens has the potential to add tokens and alter the valuation of the following funds that we offer:

Network forks are a regular occurrence with the larger networks getting forked almost daily. Even though forks happen daily it does not mean the digital asset ecosystem will adopt the new network or its token.  This merge event was unlike previous forks, with many market participants interested in seeing if the forked ETHW would gain traction with cryptocurrency investors.  

Based on early returns it appears as though the market has had a less than enthusiastic response to the new token. Few exchanges have listed ETHW. Similar to the review performed by trading platforms, our custodians and index provider partners have performed an assessment of the significance of the forked network and its corresponding token. CF Benchmarks, our index provider, has been monitoring the status of the forked network closely and has concluded its assessments on September 28th, 2022 using the criteria stated in CME CF Hard Fork Policy and CF Multi-Asset Index Series Ground Rules documents. The assessment concluded that the forked tokens are not considered a distribution event and will not alter the valuation of the Arxnovum Funds.

We welcome any questions from our investors.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
a business man watering money flowers in pots

Diversify your cryptocurrency allocation

Diversify your cryptocurrency allocation 1920 1442 cryptonews@arxnovum.com

For investors considering an allocation to cryptocurrency but aren’t sure where to start or which cryptocurrency is appropriate for their portfolio, we believe that an allocation to a diversified basket of the largest most liquid cryptocurrencies is a great place to start.  

As discussed throughout this series of blog posts, a true multi crypto strategy that allocates to more than just bitcoin and ether allows investors to reduce unique idiosyncratic risk by accessing newer and differentiated technologies while increasing diversification through a basket of cryptocurrencies. 

The use of intelligent index construction by the application of a smoothed capitalization redistributed weighting, clearly defined exclusionary rules and minimum listing and liquidity criteria were designed to enhance diversification from the core of bitcoin and ether without impacting tradability. 

We are pleased to announce the launch of the Arxnovum Multi Crypto Index Fund. Today, institutions, family offices and high net worth investors now have access to a diversified portfolio of cryptocurrency designed to represent the cryptocurrency market. We would be grateful to hear from investors that are interested in exploring the merits of adding a diversified crypto fund to a traditional portfolio. 

For more information around how to determine the appropriate allocation to cryptocurrency within your portfolio, please contact Arxnovum Investment for an assessment of your goals, objectives, time horizon and risk tolerances.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Risk management

Effective risk management of cryptocurrency

Effective risk management of cryptocurrency 800 426 cryptonews@arxnovum.com

The management of risk is important in the administration of any investment strategy on any asset class, but never more so than on a highly volatile asset like cryptocurrency. But how does a manager ensure effective risk management oversight when implementing an index strategy?  

Today we will address the various screens built into the index construction that helps minimize the loss of capital, including :

  • starting universe exclusions, 
  • legal and regulatory exclusions,
  • minimum listing and safekeeping requirements and 
  • liquidity parameters.

Starting universe exclusions:

The index starts with a focus on cryptocurrencies but excludes any digital assets that are linked to another asset including fiat currency (stablecoins), physical commodity or digital asset. This simple exclusion eliminated the exposure to the recent collapse of Terra/Luna. Thus allowing the index to remain focused solely on the economic drivers behind investing in cryptocurrency by eliminating the financial engineering that underpins stablecoins. 

Legal and regulatory exclusions:

The index then removes any cryptocurrency whose status is ambiguous or has been questioned by regulatory authorities from a developed market. While this risk mitigation seems fairly straightforward, it’s also important to note that the index also has the flexibility to, in exceptional circumstances, remove a constituent if there are any regulatory or legal actions that questions the legitimacy of the digital asset. 

Minimum listing and safekeeping requirements:

In order to create a benchmark that accurately reflects the market, an index must include securities that investors can reliably access, trade and store. In order to achieve this goal the benchmark employs two selection criteria:

  • an asset safekeeping test that states that a cryptocurrency must be eligible for custody at 2 or more regulated custodians, and 
  • a trading venue test that states that a cryptocurrency must be eligible for trading against the currency of the index on 2 or more recognized constituent exchanges. 

Liquidity parameters:

Finally in order to ensure that the benchmark is investible, an index should screen for eligible constituents that meet minimum liquidity or asset turnover requirements. The liquidity screen requires the constituents to have a liquidity ratio of greater than 0.5% relative to the remaining constituents in the index. The turnover screen requires that greater than 2% of the outstanding float is trading throughout the year. 

Each of the steps described here are designed to 1) minimize loss through the exclusion of asset linked cryptocurrencies and cryptocurrencies whose status is legally ambiguous or questions by regulators, or, 2) increase tradability by insuring minimum listing and safekeeping requirements or meeting liquidity and asset turnover requirements.

Tomorrow, we will close this week’s series of blog posts by tying together all the topics in a succinct recap of reasons to consider adding the Arxnovum Multi Crypto Index Fund to your portfolio.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Crypto rebalance

Portfolio Rebalance – September 2022

Portfolio Rebalance – September 2022 2560 1707 cryptonews@arxnovum.com

Arxnovum Investments is pleased to report that we have completed the implementation of the index rebalance of our digital asset funds.  The additions to and deletions from the Arxnovum DeFi Index Fund and the Arxnovum Multi Crypto Index Fund were initially published on our blog last week. 

The purpose of today’s blog is to review the impact to the weights of the holdings in each portfolio.

Arxnovum DeFi Index Fund
(Fund holdings)

The largest increase in weight was to new holding 1inch (1inch) at 4.52% and existing holding Uniswap (UNI) at 2.04%. While the largest decrease was to Polygon (MATIC) by 2.09%.

The strong relative performance of the Services group, which was led by MATIC, has resulted in the Services group reweighting down to 15% from 18%.  This reduction in weight resulted in a 2% increase to the Services group and a 1% increase to the Settlements group.  These changes in group weights brings the portfolio back to its target allocation of 70% Sector, 15% Services and 15% Settlements.

Finally, the Settlements group saw the introduction of a new holding with the addition of Avalanche (AVAX) to complement Ether (ETH).

Arxnovum Multi Crypto Index Fund
(Fund holdings)

The largest increases in weights were to new holdings Shiba Inu (SHIB) at 2.67%, Avalanche (AVAX) at 1.79% and Litecoin (LTC) at 1.78%. 

The multi crypto index had a significant increase in diversification with the addition of 5 new constituents which now comprise 7.26% of the portfolio.  The total number of portfolio constituents now stands at 16.

On the back of strong relative performance, the weighting to Ether (ETH) and Solana (SOL) was reduced back to their market capitalization weights. ETH was reduced by 5.32% while SOL was reduced by 1.66%. There were no deletions from the portfolio.  

The strength of ETH also resulted in the overweight to Core coins, Bitcoin (BTC) and ETH, relative to the Altcoins in the portfolio.  Therefore, the portfolio rebalance saw a 4.5% increase in the weight to the Altcoins portion of the portfolio. 

Finally, it is also important to note that BTC saw an increase in weight by 0.77%.

To see a complete breakdown of the portfolio holdings and weights:

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Crypto index tilts heavily to the largest constituents

Addressing concentration of cryptocurrency market

Addressing concentration of cryptocurrency market 1024 536 cryptonews@arxnovum.com

How to address concentration risk in portfolio construction? Today we will explore different ways to design an index that tilts so heavily to the largest constituents while keeping an eye on tradability and risk management. 

Historically, index providers have used fixed weight capping to mitigate large concentration in one or more securities, where the extra weight is redistributed to smaller non capped constituents. Recall from our first blog in the series the weights as follows:

Market capitalization: 

Bitcoin and Ethereum represent over 80% of cryptocurrency market capitalization

Source: CF Benchmarks, as of March 1, 2022

By applying a fixed cap of 25% to these weights, bitcoin and ether would exceed the cap at inception, with no difference in weighting based on market capitalization or liquidity.  Different capping weights would result in similar results and lead to the index trading more like a fixed weight index than a market capitalization weighted index. 

The point on liquidity is probably the most impactful for a small burgeoning asset category like cryptocurrency.  For an index to be representative of the market it needs to be tradable.  Smaller constituents generally have a significantly lower liquidity profile, thus making it difficult for institutional managers to replicate the market beta when the smaller constituents receive a higher weighting that results from capping the very largest constituents. Therefore an index that significantly re-weights to much smaller and illiquid names creates a benchmark that may not be representative or tradable.

So how to solve this problem? Instead of applying a fixed cap, the index will benefit from a smoothed capitalization methodology where each additional percentage weight is discounted sequentially more than the previous one by a defined amount.  This progressive redistribution from large to small caps benefits from keeping the final index weights relatively close to free float market capitalization while still achieving diversification. 

In order to achieve the smooth capitalization redistribution, the discounting will increase exponentially using the inverse step function applied to each additional 4% bucket. The inverse stepped function basically reduces each tranche by 1/ nth tranche.  To illustrate, if we were to apply the inverse step function with a 4% tranche to the 60.31% market capitalization weight to bitcoin, you would have a process that looks like the following chart and we have a new bitcoin index weight of 37.11%. 

Bitcoin diversification step example:

BTC diversification step

Source: CF Benchmarks, as of March 1, 2022

By applying this process to the whole index you achieve a redistribution that looks like the following.

Diversified weights:

Crypto portfolio with BTC and ETH concentration lowered to 65% of the total

Source: CF Benchmarks, as of March 1, 2022

The smoothed capitalization redistribution allows investors to achieve the primary goals of a market capitalization weighted index, to be representative of the market, to reduce concentration to the largest weights and to remain tradeable. 

Our blog series continues tomorrow with a discussion on how the use of index inclusion and exclusion screens can be used to help reduce risk.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
Diversification means not having all your eggs in one basket

The benefits of diversifying cryptocurrency exposure

The benefits of diversifying cryptocurrency exposure 800 600 cryptonews@arxnovum.com

Do investors even need exposure to more than just bitcoin and ether? Today we will address the benefits of a diversified portfolio of cryptocurrencies. 

While it is true that bitcoin and ether have historically experienced high correlations, the same can’t be said for bitcoin or ether versus the largest alt coins. This can be seen in the historical daily correlation table below. Note that the May 2020 analysis period was selected as the start date because it represents the common inception for all cryptocurrencies included in the analysis. 

Cryptocurrency correlations across various market environments:

Cryptocurrency correlations are usually close to or below the 0.60 threshold

Source: Coingecko May 1, 2020 through July 20, 2022

Diversification benefits typically accrue to an investor’s portfolio when correlation coefficients are less than 0.60.  As you can see the correlation coefficients are generally close to or below the 0.60 threshold, with the median correlation of 0.52.  

As with any market based statistics, these correlations are dynamic and have changed over time and in different market environments. Historically, correlations of traditional asset classes have tended to fall in rising markets while securities have tended to become more correlated in falling markets. As the cryptocurrency market has matured, it too has tended to follow a similar pattern. This can be seen by looking at the correlations during the market rise between May 2020 and the all-time high in November 2021. The median correlation during this rising market was 0.47. 

Cryptocurrency correlations during bull market period:

Cryptocurrency correlation values tend to trend down in a bull market

Source: Coingecko May 1, 2020 through November 1, 2021

By comparison the median correlation during the crypto winter from November 1, 2021 through July 20, 2022 jumped significantly to 0.75.

Cryptocurrency correlations during bear market period:

Cryptocurrency correlations in a bear market tend upwards to 0.75

Source: Coingecko November 1, 2021 through July 20, 2022

The lower correlations in a rising market illustrates the idiosyncratic risks that exist between the largest cryptocurrencies. Small differences in governance structure, consensus mechanism, cryptography, fees, or transaction times between the different cryptocurrency blockchains can have a material impact on how they perform and contribute or detract from a diversified portfolio.

A diversified portfolio of cryptocurrencies including both core positions in bitcoin and ether complimented by a basket of altcoins can add diversification benefits in rising markets and across multiple market cycles.

Check back tomorrow where we will explore how smart index construction can be used to reduce the concentration risk inherent in building a market capitalization weighted index that includes bitcoin and ether.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.
The cryptocurrency market includes more than bitcoin

Cryptocurrency investing is more than bitcoin

Cryptocurrency investing is more than bitcoin 1920 1080 cryptonews@arxnovum.com

Cryptocurrency investing includes more than just bitcoin and ether, but with over 10,000 tokens available to investors, how does one select which currencies to hold? 

In a series of blog posts we will seek to outline the case for investing in a diversified portfolio for cryptocurrencies by exploring the concentration of the cryptocurrency market, the benefits of diversification, index construction and selection criteria designed to minimize risk. We will kick off the series with a discussion of the concentration of the cryptocurrency market.

Historically cryptocurrency markets have been dominated by bitcoin which also has the distinction of being the oldest, largest and most widely known. Following its launch in 2015, ether quickly gained prominence and moved into the number two spot after only 6 months. Since the beginning of 2016 bitcoin and ether have dominated the cryptocurrency markets and the public discourse surrounding crypto investing.

As recently as March 2022, bitcoin and ether comprised nearly 90% of the cryptocurrency market. I think it’s important to clarify that we are focused solely on cryptocurrencies and have excluded stablecoins and asset backed tokens from this analysis. 

Market capitalization:

Bitcoin and Ethereum represent over 80% of cryptocurrency market capitalization

Source: CF Benchmarks, as of March 1, 2022

The dominance of bitcoin and ether in cryptocurrency markets can be attributed to a number of factors but the foremost of which is the infancy of the space in general. The average age of all constituents in the index is only 5.75 years. When you remove the largest, that average age falls to only 4.75 years. 

Each cryptocurrency network is supported by miners, node operators and users. Bitcoin, which is now over 13.5 years old, has had more than twice as much time as the average constituent to establish a network effect of participants. Since its inception, the bitcoins blockchain network has accumulated 37.5 million active non zero addresses. By comparison, the smallest constituent in the index which, coincidentally is the same age as the average age of all the index constituents, has accumulated only 130k active non zero addresses. (Source: Glassnode, July 18, 2022)

These smaller networks add diversification by gaining exposure to new and innovative technologies that strive to improve upon the existing experience users have in bitcoin or ether. While their technology is not as revolutionary as bitcoin, they are no less disruptive and can add diversification.

Tomorrow we will further expand on the benefits of diversification, even in an asset class that has experienced high historical correlations.

The products and services offered by Arxnovum are available to qualified investors in certain provinces and territories of Canada. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
 
All investments contain risk and may lose value. Investing in the cryptocurrency market is subject to risks.  Cryptocurrency, often referred to as “virtual currency” or “digital currency”, operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. Cryptocurrency operates without the oversight of a central authority or the banks and is not backed by any government. Even indirectly, cryptocurrencies such as bitcoin may experience high volatility, and related investment vehicles may be affected by such volatility. Cryptocurrency is not legal tender. Federal, state, provincial, territorial or foreign governments may restrict the use and exchange of cryptocurrency, and regulation in North America is still developing. Cryptocurrency trading platforms may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which could have an adverse impact on the net asset value per unit of the Fund. Please consult the Funds Term Sheet for a complete list of risks.
 
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Arxnovum Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither Arxnovum Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.