Anyone who, ten years ago, thought that Bitcoin was just a flash in the pan made a massive mistake. The digital coin has kept on attracting more fans year after year. In 2021 the small Central American state of El Salvador was the first country in the world to actually introduce Bitcoin as a legal means of payment. More and more businesses are putting their trust in the crypto asset, and doing so in the direct sense. Leading companies such as Square, MicroStrategy and Tesla have already built up their own Bitcoin holdings. Tesla boss Elon Musk, however, has also taken a shine to Dogecoin: for the last few days customers have been able to use "DOGE" to pay for Tesla merchandise. The peer-to-peer cryptocurrency, which originally started off as a joke currency, jumped sharply following the announcement.
In view of the huge range of digital assets – industry service CoinMarketCap counts more than 9,000 cryptos at present – it is not easy for investors to always have the right coin in their portfolio. A professionally managed index would offer a remedy in this regard. No sooner said than done: Leonteq brought the Leonteq Crypto Market Index into being for precisely this purpose. The index represents 11 crypto assets, which currently account for 73% of the total capitalisation of the crypto market. That makes it the most broadly diversified passive crypto index on the Swiss stock market. At the moment Bitcoin and Ether are the heavyweights in the benchmark. To avoid excessive clumping, though, the weighting of each index component is determined on the basis of their market capitalisation using a sophisticated mechanism.
The diversification of the index can even increase over the course of time. Inclusion is decided by a mix of selection criteria, some of which were required by SIX and others specified by Leonteq. Among those that play a role are negotiability by Leonteq as well as minimum requirements on liquidity and market capitalisation. Only those coins which meet all the requirements are considered as components of the index. At present there are 11 crypto assets, but the benchmark has room for 25 in total. The selection criteria are applied quarterly, ensuring that the index is always up to date with the market.
Looking back, it is clear that every security holding should now include cryptos as a new asset class. In a retrospective test, a portfolio consisting of 95% equities and 5% Bitcoin was compared with the MSCI Daily TR Net World Index. In the period under analysis from the start of 2015 to 30 September 2021, the holding enriched with crypto assets achieved a proud annual return of 16.4%, putting it just under 6 percentage points ahead of the international share index. What is more, this outperformance comes at very little increase in risk, with the portfolios almost identical in terms of the two risk barometers of volatility and maximum drawdown. The new tracker certificate from Leonteq offers a convenient way of bringing the highly promising crypto strategy into a securities account. Issued in USD, the participation product tracks the Crypto Market Index completely 1:1, less a management fee of 1.95% p.a. Rebalancing is performed quarterly, and for the first time on 14 April 2022.
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