Pantera Capital, an investment fund that focuses on bitcoin, has announced an index it says will allow investors to track the cryptocurrency over a medium-term timeframe.
Dubbed the BitIndex, it takes into account seven different factors that Pantera believes accurately charts bitcoin's overall progress.
What’s interesting is Pantera Capital is not including price in the BitIndex, instead tracking other data sources that it believes lends to bitcoin’s technological progression.
In the fund’s monthly report for June, Pantera stated:
Components of index
The seven measures that the BitIndex includes, in order of importance, is as follows:
- Developer interest on GitHub.
- Merchant adoption as a measure of consumer adoption.
- Wikipedia views measuring bitcoin education.
- Hashrate by logarithmic scale corresponding to orders of magnitude.
- Google searches captured by the number of times “bitcoin” appears.
- User adoption as measured by wallets.
- Transaction volume on the bitcoin network.
Pantera's letter does not indicate how it calculates the merchant adoption metric, although statistics for hashrate, user adoption by wallets and transaction volume are publicly available from a number of different data sources.
Information from websites such as GitHub for developer interest, as well as Wikipedia and Google to identify mainstream interest and popularity, is also readily available.
Always about price
BitIndex offers a different look at technological aspects of bitcoin rather than infatuation with the cryptocurrency’s valuation.
In fact, the firm says that it is value distortions that influenced the creation of BitIndex, specifying, "price manipulation at Mt. Gox and/or the Chinese and in the first quarter of 2014 due to the collapse of Mt. Gox", as problems defining bitcoin's true worth.
There is a lot of interest in bitcoin's value, and the vast number of exchanges with different prices has created a need for composite pricing information.
However, Pantera states unequivocally in its letter that the BitIndex gives people a longer-range view of bitcoin than what price indexes offer:
Focus on investing
While the BitIndex may provide a glimpse into where bitcoin is going, it is questionable whether it offers insight into the bitcoin economy's adoption rate as a store of value – seemingly something Pantera's investment clients would be wanting the firm to do.
“The index looks at the interest level across a couple key populations: general public, users, developers, and merchants, and should be a pretty accurate judge of the overall growth of bitcoin", said Andy Beal, a lawyer with Crowley Strategy that advises bitcoin startups.
He added, however:
is backed by Fortress Investment Group, Ribbit Capital and Benchmark Partners. Its focus on bitcoin began in 2013, and the firm invests directly in BTC as well as funds startups that operate within the industry.
Bloomberg's company overview information indicates that, prior to concentrating on bitcoin, Pantera Capital previously invested in public equity, fixed income, currency and commodity markets.
Graph image via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.