CMQ Total Market Cap Index Tracker (MKT)
Picking the best coins to buy and sell at the right time is the best way to underperform the market. So why not just buy the market?
Among all strategies on offer, tracking the total crypto market cap index is the most passive investment strategy possible and it consistently beat Bitcoin hands down with over 6 years of back-testing data.
Table of Contents
The Data Science
At CMQ we have researched :
- the number of constituents
- the rebalancing frequency
- trading fees
- weighting strategies
- … and so on
Talking of fees factored in at just 0,1% here is the difference in performance, illustrating how important fees are when evaluating performance :
Looking at typical quant analytics we analysed the absolute mean (or spread) of tracker candidates. The table below shows a sample and for readability reasons we’ve plotted only 3 of them.
We also analyzed the candidates based on standard deviation with a sample table below and again 3 plotted :
We further looked at a combination of those metrics that we called the Spread Ratio using the following formula : (spread mean * 0.2 + spread std * 0.8 = the “ratio”) :
And finally analyzed the tracking error (sample and graph below) :
While we liked strategy id35 (which delivered a tracking error of 0.05% or 99.95% success rate in tracking the index after fees), we also felt that in order to select the BEST strategy we had to take additional factors into consideration.
- The alpha of the tracker should be positive.
- The lower the number of assets the better the accessibility to investors and tradability (minimum trades require 10 USD per coin on most exchanges).
- The lower the frequency of rebalancing the higher the efficiency.
For the latter factors, we looked at 15 reputable exchanges. Example of results table :
Hence we concluded that strategy Id64 was our best tracker and has become our Real Total Market Cap Index Tracker designed specifically for cryptocurrency investors, traders, funds, DeFi users, and institutions wishing to track CMI’s Real Total Crypto Market Cap Index with the lowest possible tracking error and positive alpha.
Sample of Performance Metrics
MKT is a digital asset index tracker designed to objectively track the performance of the entire blockchain sector. The tracker can be bought and sold as a Coin Set directly on partner platforms insuring timely reconstitution and rebalancing.
Token Selection Criteria
As part of the token inclusion assessment, CMQ considers a wide range of characteristics :
- The coin or token must be available for trading on reputable exchanges* with sufficient liquidity
- The coin or token must not be considered a stablecoin
- None of the following will be included in the index:
- Wrapped tokens,
- Tokenized derivatives,
- Synthetic assets,
- Tokens that are tied to physical assets,
- Tokens that represent claims on other tokens.
- It must be possible to reasonably assess the token’s circulating supply
- The coin or token must have been launched and traded for at least 90 days before being able to qualify for tracker inclusion
The tracker value is the spot value of the MKT and is calculated to reflect the price changes of all 10 underlying assets.
- Weight : tracks the the proprietary market capitalization metrics of individual assets as a share of the total capitalization of the tracker
- Price : market price of the coin or token in USD as calculated by the selected trading venues as a reference source
Ongoing Tracker Maintenance
The tracker is maintained on a bi-weekly basis in two phases :
I. Determination Phase
The Determination Phase takes place the day prior to the reconstitution phase. It is the phase when the changes needed for the next reconstitution are determined.
- Proprietary market capitalization metrics for all candidate tokens
- Rank all candidate tokens by market capitalization and select the top 10
- Additions and deletions: The tokens being added and deleted from the index calculation are determined during this phase
- Weighting : MKT is an equal weight tracker. That is that all constituents must have the same weight at reconstitution
II. Reconstitution Phase
At the end of the Determination Phase, the index composition will change to the new constituents and weights. Components will be added or removed, and weights adjusted. To avoid front-running, the outcome is published after the reconstitution is effective.