Having posted all-time highs and attracting major investors, the cryptocurrency market has quickly become a promising investment vehicle that offers lucrative returns albeit high risks. In just over a year, the number of digital coins in the market has ballooned to over 2,000 – and continues to grow by the day.
What is cryptocurrency index fund?
Retail investors or traders buy and sell digital coins on exchanges using their own wallet and accounts. However, considering the numerous cryptocurrencies in the market and its volatility, managing your cryptocurrency portfolio has become extremely challenging.
This is where cryptocurrency index funds come to the picture.
Just like index funds in the stock market, a cryptocurrency index fund is a form of mutual fund that tracks the return of certain segments of the market. An index is comprised of groups of cryptocurrencies that represent different market segments. The index performance is based on the overall performance of the market segments and not the individual digital coin. Diversifying your investment into different digital currencies minimizes the risk and simplifies management of your portfolio.
What are the benefits of a cryptocurrency index fund?
Although investing in a single asset could give you large returns, it also exposes you to increased risks, especially in an unpredictable and erratic market. When you invest only on a single cryptocurrency, the performance of your investment is solely linked to the digital coin’s performance, whether it is good or bad.
Cryptocurrency enables you to diversify your portfolio across different market segments. As such, you can potentially minimize the negative impact in your fund’s performance in case an asset suddenly stumbles. Index funds allow investors to “hedge their bets” and retain a good performance despite some losing cryptocurrencies.
Cryptocurrency index funds offer an easy platform for both novice and seasoned investors to invest in popular digital coins without struggling to constantly monitor them and go through research. Most index funds also have in-depth information, latest news as well as analyst insights about the market.
Due to the advantages of index funds, they have spread rather quickly in the digital market. Different cryptocurrency index funds have been launched. Some exchanges have also introduced index funds tied to their platform.
Interesting cryptocurrency index funds
There are numerous cryptocurrency index funds in the market. Here we list down some interesting funds.
The Cryptos Fund cryptocurrency index fund tracks the CCi30 index which is comprised of the top 30 digital coins in the market in terms of market cap. It is the first regulated cryptocurrency index fund. Cryptos Fund provides investors with a plenty of exposure to new digital coins and includes 90% of the total cryptocurrency market capitalization. It offers advantages such as less volatility, higher returns, lower fees due to less trading, and an unparalleled security. Cryptos Fund is available to all investors regardless of location.
This index fund is hosted by Bitwise and is composed of the 10 leading digital coins in terms of their 5-year diluted market capitalization. The assets in the fund are rebalanced every month to ensure good performance. HOLD 10 is also available only to US investors with a minimum investment requirement of $25,000.
A token-based index fund, Crypto20 is comprised of the top 20 digital currencies using smart contracts. The top 20 cryptocurrencies are based on market cap. Crypto20 boasts of lowest fees (at just 0.5%), no exit, advice or broker fees. Any investor can participate except US citizens. C20 tokens can be purchased in popular exchanges such as ED, IDEX, Bibox, and HitBTC.
Coinbase Index Fund LP (CBI)
Coinbase has launched a passively-managed index fund that is comprised of assets listed on GDAX weighted by market capitalization (Bitcoin, Ethereum, Bitcoin Cash, and Litecoin). It is currently restricted to US accredited investors and requires $250,000 investment fund. The fund is rebalanced annually to cover supply changes and to check on new assets that enter the GADX.
Other notable index funds you might want to check out are Crush Crypto Core (CCC), Blockchain Index (BLC), and Bit20.
Cryptocurrency index funds are a great investment tool for investors, whether novice or seasoned, into the digital coins’ market. It allows diversification of the portfolio and diffuses the risks associated with digital coin investment.