Articles on: Crypto Bundles

Which methodology is used for Bundles?

As Finst is an execution-only platform, we do not provide any investment advice nor asset management to our clients. We do not have any opinion on where the market will evolve, which is why we decided to develop a clear and objective proprietary methodology regarding the composition and functioning of our crypto Bundles.

There are many different (indexing) methodologies used in the investment world. The two most common ones are “equal weighting” and “weighting based on market capitalization” (also known as “market cap.”).

An equal weight methodology means that, for instance in the case of a Top 10 Bundle, 10% of the investment would be allocated equally to each constituent. While this methodology is relatively easy to implement, it does not closely follow the actual performance of the market and would lead to a high number of rebalancing transactions, which would ultimately impact performance.

On the other hand, with the weighting by market capitalization methodology, the weight of each constituent is solely based on their respective market capitalization out of the total capitalization of the cryptocurrency market. While this methodology is supposed to follow the market more closely, it also implies that some constituents may have very small weights (e.g. less than 1%), which might make them impossible to buy or sell on the market without imposing a minimum order amount.

In our view, our hybrid methodology combines the best of both worlds. The weights of our Bundles constituents are calculated using equal weight for half of the Bundle, plus market capitalization-based weight for the other half of the Bundle, in an objective and non-discretionary way.

Here is a concrete example for illustration purposes:

Assume the Top 5 Bundle is composed of coins A, B, C, D and E. Suppose the percentage of the market cap. of each of these individual coins out of the total capitalization of the entire crypto market are as follows:

Coin A = 50%
Coin B = 25%
Coin C = 10%
Coin D = 10%
Coin E = 5%

Using the first part of our methodology (equal weight for half of the Bundle), 10% of the investment would be allocated to each constituent, the total representing 50% of the Bundle.

Adding the second part of our methodology (market cap.-based weight for the other half of the Bundle) would lead to the following weights:

Coin A: 50/2 = 25%
Coin B: 25/2 = 12,5%
Coin C: 10/2 = 5%
Coin D: 10/2 = 5%
Coin E: 5/2 = 2,5%

When summing up the weights of the first part together with the second part, the final weights of this fictive Bundle would look as follows:

Coin A: 10% + 25% = 35%
Coin B: 10% + 12,5% = 22,5%
Coin C: 10% + 5% = 15%
Coin D: 10% + 5% = 15%
Coin E: 10% + 2,5% = 12,5%

Total = 100%

Note that, in reality, the market capitalization of the constituents and of the market as a whole are constantly changing. This is why Finst rebalances the Bundles every month automatically. By rebalancing monthly, we ensure your investment stays in line with the target weights of the Bundle, according to our methodology.

The only exception to this rule concerns the Top 2 Bundle, which uses full market capitalization-based weights because it only has 2 constituents.

Updated on: 17/04/2023

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