ETF construction on CRIX

Résumé : Investments in cryptocurrencies (CCs) remain risky due to high volatility. Exchange Traded Funds (ETFs) are a suitable tool to diversify risk and to benefit from the growth of the whole CC sector. We construct an ETF on the CRIX, the CRyptocurrency IndeX that maps the non-stationary CC dynamics closely by adapting its constituents weights dynamically. The scenario analysis considers the fee schedules of regulated CC exchanges, spreads obtained from high-frequency order book data, and models capital deposits to the ETF stochastically. The analysis yields valuable insights into the mechanisms, costs and risks of this new financial product: i) although the composition of the CRIX ETF changes frequently (from 5 to 30 constituents), it remains robust in its core, as the weights of Bitcoin (BTC) and Ethereum (ETH) are robust over time, ii) on average, a portion of 5.2% needed to be rebalanced at the rebalancing dates, iii) trading costs are low compared to traditional assets, iv) the liquidity of the CC sector has increased significantly during the analysis period, spreads occur especially for altcoins and increase by the size of the transactions. But since BTC and ETH are most affected by rebalancing, the cost of spreads remains limited.