The EC10 Index Today
DCX10, subsequently renamed EC10, was launched on 15 September 2018. The index consists of the top 10 cryptocurrencies by market capitalisation, exclusive of Stablecoins. The choice of index was warranted following back-testing procedures of such index rules from 1 January 2016 exhibiting an approximated 4200% growth margin against a 1700% growth margin of Bitcoin (BTC). The back-testing employed a free-floating market capitalisation weighted methodology. When the EC10 Index was launched in 2018, DCX Capital applied this procedure to create an illustrative history from 1 January 2016. This data is transparent and provides all stakeholders with substantiated information of historical price behaviour. This has been clearly disclosed on the DCX Capital website since the fund’s inception. At most, DCX’s Index Committee would have to adjudicate whether market capitalisation as published by external parties, were accurate and if questionable coins did meet the rules sufficiently to be included or excluded from the index (e.g., discretionary Dogecoin omission).
Regarding outperforming Bitcoin: From the EC10 price history (inclusive of daily closing prices and former back-tested simulation of index constituents) our thesis is extrapolated to a 4-year cycle (period between halving events). EC10 demonstrated outperformance of Bitcoin due to the observed acceleration and break, price correlation behaviours of Ethereum, and the other “Altcoins” within the index during the latter part of the ‘parabolic’ cyclical phase.
Historical performance is no guarantee of future returns; however, our prognostication is that cryptocurrencies move in 4-year cycles and that correlations are observed against halving events of Bitcoin. We are currently seeing the continuation of this phenomena with a continuous burgeoning of the index. According to this thesis, EC10 will outperform Bitcoin sometime during the latter part of each cycle as investor sentiment moves to ETH and other altcoins in the index. However, this is simply a conjecture forecast based on historical behaviour.
Upon inception of DCX in 2018 full disclosure of AUM was provided alongside comprehensive details of the holdings of the (then) DCX10 Fund. It was a slow start, which required patience and a great deal of work to build a reputable platform to grow the AUM, but eventually the fund started to gain substantial monetary traction. This was a joyous moment but also the time we started noticing lots of scam prevail around the crypto scene. DCX was still a maturing company and since we were still pre-revenue with very little own reserves at the time, we could not afford becoming the target of scammers, hackers and blackmailers coming after the honeypot. Previously DCX also allowed clients to do BTC deposits and allowing 100% transparency, including showing Crypto wallet addresses. This potentially put clients at risk of being targeted by malicious parties. Hence, in the interest of protecting clients we stopped publishing our AUM when it reached R100m. This may or may not have been the best cause of action back then, but hopefully this helps provide grounds for the actions taken. To all those who disagree, please accept our humble apology. DCX Capital is currently in the process of publishing Minimum Disclosure Documents to enhance transparency to all stakeholders. Furthermore, please see the AUM on our site updated in real-time here.
Regulatory ambiguity around cryptocurrencies remains prevalent in the South African legislative environment. As such, the DCX Team is paying close attention to any material legislative changes and announcements. DCX employs a compliance officer and has voluntarily registered with the Financial Intelligence Centre (“FIC”) as an accountable institution. In terms of AML and FATF, we report on suspicious transactions etc.
As part of the process of aligning the EC10 instrument with anticipated regulation in SA, we are in the process of migrating the AUM to a registered and regulated custodian which will also enable us to create and maintain a register of ownership of each of the underlying coins that add up to the AUM. This will provide further protection to our EC10 holders as they will now become the registered holders of the actual ‘underlying’ Crypto’s and in the event of anything unforeseen circumstances with DCX, the administrator, clients will have a direct claim on the NAV of the EC10.
These assets, as of the current financial year, are published and independently audited on a bi-annual basis. We are currently putting the final touches on this structure and should be launching before the end of April 2021. In the predominantly unregulated South African cryptocurrency space, DCX Capital has continuously endeavoured to set a respectable precedent of transparency, security, and trust.
As we move into the next phase of cryptocurrencies in South Africa with regulation on the horizon, we are hard at work navigating our path to becoming a fully regulated Crypto Asset Service Provider (“CASP”). We are 100% committed to this cause of action as we see this as the only route to growing our company 10x and beyond. Achieving such growth is arguably plausible given the traction of institutional adoption gradually taking hold across the globe.
We believe once regulation becomes clearer, SA will see its first crypto ETF and not before. The JSE made it clear back in 2018 already that the industry was simply not yet regulated sufficiently for them to allow the listing of an ETF. At that stage regulators all over the world were rejecting Crypto ETF applications for similar reasons. The final structure that EC10 will be managed in, post regulation is uncertain and may or may not be an ERC20 token. Other candidates include an ETN or ETF or even a listed shell company or SPV. Whatever the final solution, it will include a custodian.
The NAV of the EC10 is as follows: Total assets under management (“AUM”) divided by total tokens in circulation. Now, tokens are minted by means of an ERC20 smart contract from time to time as and when required. The NAV is, however, calculated by including the tokens accrued for that day or week, to the number of tokens already in existence. The actual minting event in other words does not influence the NAV at all. In the spirit of transparency, we have resumed the physical minting as far as we can manage the cost effect it has on NAV since transaction fees on the Ethereum network have skyrocketed in recent weeks due to its meteoric rise in price and the general cryptocurrency bull run. Ethereum is the second most valuable crypto and holds second place in the EC10 index.
In November 2020 we made the difficult decision to increase the management fee from 1% pa to 2% pa, aligning with international competitor index providers such as Greyscale and their GBTC product as well as Bitwise10. Our amended fee schedule was published on our platform and we shared this with all our EasyEquities clients and our Twitter followers. We anticipate that this fee will be lowered again, hopefully within 2021, if our AUM continues expanding at the current rate.
Finally, let’s look at the recent performance of EC10 compared to BTC: (priced in ZAR on 2021–04–06)
This has been a marathon newsletter but we hope you will find it informative and feel assured that you made the right decision making EC10 your Crypto investment of choice.
