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:
“While some other indices also offer guidance (such as trade in USD), we chose not to include them because of unreliable data, limited availability, or other statistical problems.”
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.
Source: Pantera Monthly NewsletterWhile it appears the BitIndex closely followed pricing movements in the latter half of last year, measurements the fund uses show that, despite negative news events like Mt. Gox and the US Marshals’ BTC auction, bitcoin is on an uptrend.
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.
CoinDesk has its Bitcoin Price Index and the Winklevoss twins, who are major investors in bitcoin and are trying to launch an ETF for the cryptocurrency, also have the creatively named Winkdex.
However, Pantera states unequivocally in its letter that the BitIndex gives people a longer-range view of bitcoin than what price indexes offer:
“Pantera has developed the BitIndex to inform our views on bitcoin. It is not a tool to forecast bitcoin’s price. This index is designed to assist us in forming our views on what may happen to bitcoin in the medium term.”
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:
“The only group that was not included that can really affect growth is investors.”
Pantera 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.
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