The TN Crypto 100 Index was created by Taklimakan to implement monitoring tools used in the financial services industry in the cryptocurrency sector. The index consists of the top 100 cryptocurrencies with the largest market capitalization. By creating an index, Taklimakan aims to track the broader trends and movements of the crypto market.
The index will establish a benchmark as a reference point, against which enthusiasts will be able to monitor market performance, volatility, and trends.
The index is used to calculate a market return parameter, a beta (or volatility) measurement, and an alpha measurement. The market return parameter is based on the return from the TN Crypto 100, which is derived from the performance of the individual cryptocurrencies in the TN Crypto 100, and makes it possible for individual users to calculate analytical values.
The volatility measurement is a statistical analysis of the dispersion of returns for a given cryptocurrency. It is obtained from the square root of the variance of returns. Generally speaking the lower the volatility, the more attractive the cryptocurrency. The alpha measurement is based on how well a cryptocurrency performs against the market index benchmark. This shows whether a cryptocurrency is over or underperforming in the market.
Therefore, a positive alpha means that a portfolio outperformed the index, while a negative alpha would be below the benchmark and indicate an underperforming portfolio compared to the index average. For example, you can use the alpha to gauge how an individual portfolio is performing against the benchmark using the following equation:
α = Rp – [Rf + (Rm – Rf) β]
- Rp = Realized return of a portfolio or cryptocurrency
- Rm = Market return (return of the TN Crypto 100)
- Rf = risk-free rate as defined by the Central Bank
As for the volatility, or beta, it measures the systematic risk of a cryptocurrency compared to the market as a whole. The beta is calculated through regression analysis, by dividing the covariance of a cryptocurrency’s returns and the returns of the TN Crypto 100 index by the variance of the returns of the TN Crypto 100 index over a 60-day period.
Recent days are weighted to have more impact than those further back. The TN Crypto 100 is used to measure average market volatility, with the beta determining the volatility of an individual cryptocurrency compared to the market average. A beta of 1 means that it follows the trend of the market, and a number greater than one means that the cryptocurrency is more volatile than the index average.
These alpha and beta indicators will help the individual enthusiast determine the course and stability of particular cryptocurrencies. By studying the alpha-to-beta (reward-to-variability) ratio, also known as the Sharpe ratio, performance and instability can now be accurately analyzed by any cryptocurrency enthusiast.
Although there may seem to be a sharp learning curve for these tools, they are used every day in the financial services industry. What is new, is that Taklimakan is now bringing these tools to the cryptocurrency markets. They plan to provide further examples and educational materials to further understanding of the value and practical implementation of these tools.
For more information on the Taklimakan Network, the TN Crypto 100 Index, and the platform’s other tools and services, click here!
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