Can the Index Model Be Used in Cryptocurrencies? Evidence from Traditional Methods and Numerical Simulation

The study aims to compare three different index models for crypto assets, offering investors new methods for risk management and contributing to the literature in this field. To this end, three different indices were calculated using traditional weighting, standardization, and numerical simulation methods to determine the accuracy of these models in predicting market volatility. The scope of the study is limited to seven crypto assets with the highest trading volumes and three additional crypto assets as a control group. The study is confined to examining the relationship between the index and volatility. Furthermore, analysis of index forecasting or the impact of other variables on the index remains an area for future development. The findings based on the calculated indices show that the traditional weighting model predicts market volatility with 65% accuracy, while the standardized index increases this rate to 78%. In contrast, the numerical simulation achieves only 42% accuracy, calling into question established assumptions in the literature. These results carry significant transformative potential for crypto investors’ risk assessment processes. The index-based approach enhances market transparency and provides regulatory bodies with a new supervisory framework. The vital implication for policymakers is that data-driven regulation in crypto markets is now technically feasible.