The digital asset industry has grown at a rapid pace since the inception of bitcoin in 2008, accelerating greatly over the few years. This booming new asset class, now worth more than $3 trillion, has produced thousands of different projects with a wide variety of use cases and applications.
That extraordinary growth has created a commensurate amount of complexity. To help investors better understand the digital asset space, CoinDesk Indices is introducing the Digital Asset Classification Standard (DACS). The DACS will provide the market with structure and transparency to help classify and simplify the industries inside the asset class.
Using a classification standard to define markets is not a new concept. The Global Industry Classification Standard (GICS), developed by MSCI and Standard & Poor’s in 1999, is widely used by equity investors to classify over 26,000 publicly traded companies globally. Research shows GICS explains stock return co-movements within sectors, helping investors determine important drivers for company valuations, identify relative value opportunities by comparing companies in the same sector and develop macro insights on sectors to make asset allocation decisions.
Furthermore, sector indices developed based on GICS have become the backbone for investors’ allocation, risk and performance-evaluation models. According to a recent IIA benchmark survey, nearly half of the equity indices are sector- or industry-based, which really speaks to the power of GICS to modernize equity investing.
While DACS is unique to digital assets, it will serve many of the same functions as classification systems used for traditional asset classes. Among other things, DACS provides the market with a transparent and standardized method to determine sector and industry exposure, facilitates portfolio attribution analysis and will help pinpoint investment opportunities.
What DACS brings to investors
DACS can help investors identify investment opportunities by industry across digital assets. It can also be instrumental in evaluating the impact of sector trends on a portfolio, analyzing sector contributions to performance and measuring the degree of exposure to specific sectors versus benchmarks and peers. Lastly, it can help portfolio managers build well-defined sector-focused and sector-rotation strategies, and further attribute returns and risk by industry group and industry to best manage the sector strategies.
While some early efforts exist to classify digital assets by their use cases, the complexity has rapidly grown, so a hierarchical structure is needed to help investors navigate digital assets at different granularity levels. DACS provides a non-ambiguous structure throughout its hierarchy – meaning each digital asset is only assigned to one industry, which is included in only one industry group, which is included in only one sector.
Here’s what the framework looks like:
DACS is a three-tier system that contains six sectors, 21 industry groups and 36 industries. The six sectors at the top level consider the main feature that defines a digital asset. The industry groups and industries support more specificity in use case and implementation differences. The DACS will be reviewed at least monthly to reflect the latest development in the digital asset market.
Also, DACS is universal, with the ability to cover most digital assets globally. It will always be current thanks to periodic reviews to ensure the framework adapts to reflect the quickly evolving digital asset landscape.
Read more: View the Complete DACS 500 List