How to Be a Crypto ‘SAMURAI’

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Is your crypto investment outperforming or underperforming? That can easily be measured only by using the right benchmark.

Insights, news and analysis for the professional investor

By Lawrence Lewitinn, Managing Editor for Global Capital Markets

December 19, 2021

Sponsored by

Bitcoin (BTC) - $47,519.89

Ether (ETH) - $3,974.83

Prices as of 12/19/21 @ 9:00 a.m. UTC

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There are just 12 days until the year ends, and investors and portfolio managers are starting to think about how they position themselves for 2022. That’s going to require some way to measure their performance as they put their assets to work.

A lot has changed in crypto, especially in 2021. This cycle has seen an explosion in cryptocurrencies, but unlike the initial coin offering (ICO) boom four years ago, many appear to have more staying power.

Each one offers its own value proposition and so will need an appropriate benchmark. As this market develops, that’s becoming more possible.

CoinDesk has recently launched the CoinDesk DACS, which stands for the Digital Asset Classification Standard. Like the way index providers such as S&P Dow Jones or MSCI classify assets such as stocks, the DACS helps investors figure out where each coin fits in the universe and who its direct competitors are to make informed decisions. “DACS provides the market with a transparent and standardized method to determine sector and industry exposure, facilitates portfolio attribution analysis, and will help pinpoint investment opportunities,” as the official page states.

So far, 500 coins, representing the bulk of the market, are categorized. For those more interested in what each category is all about, here’s a guide.

CoinDesk already has two multi-asset indices, the CoinDesk Large Cap Index (DLCX), and the CoinDesk DeFi Index (DFX). Each one offers a gauge that’s more precise and appropriate than merely comparing a cryptocurrency to, say, bitcoin or ether.

As institutional money flocks to crypto and as more sophisticated investors enter the market, such categorizations will be essential tools demanded by portfolio managers to implement their investment theses.

Crypto is growing up. It’s time it has the features of a maturing market. The DACs is certainly a key one.

– Lawrence Lewitinn

A message from Crypto.com

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The Briefing

Contrary to Hollywood portrayals, it’s not all “models and bottles” for portfolio managers, unless those bottles solely contain aspirin and the models they are chasing can be found in a spreadsheet.

At the end of the day (or, more likely, quarter), portfolio managers must show they can add value or else clients will find someone who can or even just buy an index fund.

Those same institutions that measured themselves against such benchmarks are now turning to bitcoin. Along with it comes interest in alternative cryptocurrencies (altcoins).

Five years ago, there may have been more than a few cryptos out there, but bitcoin accounted for roughly 95% of the entire market capitalization of all cryptocurrencies. In early 2018, it was just about a third of crypto’s market cap as the initial coin offering (ICO) boom led to a plethora of new entrants. Many of the early alternatives died out but others did not (hello, ether). As recently as a year ago, bitcoin boasted 70% of the aggregate market cap. Today, bitcoin has only a little above 40%.

What the DACS?

New entrants have once more grabbed the market’s attention. Some appear to be more than a flash in the pan. Many will never catch fire. By CoinMarketCap's count, there are 15,765 cryptocurrencies as of Friday morning in New York, and that number grows every day, it seems, with many of those listed not trading on any markets at all.

This past week, CoinDesk announced the launch of something called the Digital Asset Classification Standard (DACS). It covers the top 500 cryptocurrencies by market cap, a reasonable limit on the universe of relevant currencies. The goal is to give investors a sense of where a coin fits in this universe. It answers questions like, “What are its peers?” and “What are its main competitors?”

The six sectors identified are currency, smart contract platform, DeFi, entertainment, computing and digitization. Those, in turn, are broken down into industry groups which, in turn, are each made up of industries.

Read the rest of the column here.

– L.L.

A message from Copper

Copper provides a gateway into the cryptoasset space for institutional investors by offering custody, prime brokerage, and settlements across 250 digital assets and more than 40 exchanges. We are committed to providing flexible solutions that adapt to the changing cryptoasset space, while enabling far greater transparency, control, and security for asset managers.

To learn more visit copper.co/interest

Chain Links

During the U.S. Federal Reserve’s “hawkish” meeting on Wednesday, the central bank’s chairman, Jerome Powell, highlighted the potential for properly regulated stablecoins. TAKEAWAY: Amid the Fed’s announcement of plans for several interest rate hikes during 2022, Powell displayed interest in crypto and mentioned it was not a danger to financial stability. Powell’s stance directly contradicts recent statements made by Sen. Elizabeth Warren of Massachusetts.

Nansen and Dune Analytics secured funding rounds at $750 million and $1 billion valuations, respectively. TAKEAWAY: Crypto companies continue to take advantage of record-high funding levels, and two of Ethereum’s largest data providers highlight the recent rounds. On-chain data has become highly sought after during the most recent bull market, allowing Nansen and Dune to attract new interest.

Russia’s central bank seeks a total ban on future crypto investments within the country. TAKEAWAY: The Bank of Russia issued a new set of rules for mutual funds in that they may no longer invest in digital currencies or products whose underlying prices rely on digital currencies. The Russian government has long since had a negative outlook towards crypto assets, highlighting the technology’s potential to assist with money laundering.

Venture capital in the crypto space has become more popular as new funds emerge and traditional funds enter the market. TAKEAWAY: The recent bull market brought about significant institutional interest in blockchain technology and cryptocurrencies. As a variety of use cases for blockchain technology emerge, the current landscape allows more niche funds to get similar deal flow as the larger players in the industry.

– Teddy Oosterbaan

Introducing CoinDesk’s new Digital Asset Classification Standard, which was created in response to the significant growth of the number and types of digital assets offered in the market and the realization that traditional classification standards used for equities and other asset classes could not be adapted accurately to classify digital assets. Read more about DACS.

Podcast episodes worth listening to:

The Breakdown, With NLW
“What the Fed’s ‘Hawkish’ Turn Means for Bitcoin”
Given that the Fed is now projecting three rate hikes in 2022, why are stocks and BTC up?

CoinDesk Podcast Network
“Exploring Bitcoin’s Lightning Network”
The Lightning Network is arguably the most anticipated scaling solution for Bitcoin to date. Why isn’t everyone using it?

Opinionated
“Craig Wright Isn’t Satoshi Nakamoto and Other Facts ‘The Media’ Won’t Tell You”
Plus: The gang talks about who didn’t make CoinDesk’s “Most Influential 2021” list.

On Purpose, With Tyrone Ross
“RIA of the Future”
The next generation of investors is on social media, in gaming, on Web 3 and in the metaverse: Advisers, get ready.

Real Vision Podcast
“Did the Fed Topple Your Assets? Advice for Your Wallet”
As the Fed wages its battle against inflation by signaling raising interest rates in 2022 at a faster pace than expected, Liz Young, Head of Investment Strategy at SoFi, explains who the winners and losers are from the Fed’s decision and how we should position our investments.