Cryptocurrency index funds are attracting a lot of attention in the world of crypto investment and are set to be one of the hot topics for 2020. They represent an easy way into cryptocurrency because they allow investors to avoid the hassle and stress of actively tracking and managing their own portfolio of coins. The best index funds also help to spread risk by diversifying your investment across a wider selection of coins. This way, investments are protected somewhat from the volatility of the market.
Cryptocurrency Index funds work the same way as any other index fund you can invest in. Essentially, you buy shares in a fund. This fund is made up of a basket of different cryptocurrencies. So you are not investing directly in a particular coin, instead, you buy into the fund. The fund then invests your money across the basket of cryptocurrencies they follow.
The value of your investment then tracks this selection of cryptocurrencies, which can lead to better payoffs and reduced risk than investment in a single cryptocurrency.
By buying into a fund, you don’t need to worry about setting up wallets, tracking coin prices and trading coins through exchanges – this is all handled for you. Of course, this does mean a fee, which will vary from fund to fund. A higher fee does not necessarily represent a better-managed fund, so it is important to do your research! So, in the spirit of research, we wanted to look at some of the best cryptocurrency index funds that are currently available on the market in 2020.
Coinbase Index Fund
Coinbase has grown to become an industry leading exchange platform thanks to their user-friendly interface and trustworthy reputation. Looking to capitalize on this popularity and their huge user base, Coinbase now offers an index fund which currently tracks seven digital currencies: Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Ethereum Classic, Ox and Basic Attention Token (BAT). BAT is the newest addition, having only just been added to Coinbase’s trading platform in early November 2018.
As you would expect, the vast majority of the fund is made up of Bitcoin. At the time of writing, Bitcoin accounts for just over 75% of the fund. Here is the full breakdown:
- Bitcoin – 76.38%
- Ethereum – 14.55%
- Bitcoin Cash – 5.71%
- Litecoin – 2.02%
- Ethereum Classic – 0.64%
- 0x – 0.44%
- Basic Attention Token – 0.25%
The striking thing is that, of the Altcoins included, there is nothing particularly exciting or unexpected here. After all, Coinbase has largely stuck to the most popular cryptocurrencies, so has a fairly limited selection. The fund, therefore, focuses on large market cap coins, which should be less volatile than smaller market cap plays.
For the more adventurous though, there are both trading platforms and index funds other options with plenty more altcoins to offer.
BB Index offers a selection of Index funds that are associated with Olympus Labs, a blockchain financial ecosystem. This means that investors who are already used to working within Olympus will find these indexes easy to buy into. It also means that there is a huge amount of crypto expertise behind this index fund set-up.
Incredibly, there are 26 different index funds to choose from here, which gives a huge amount of flexibility and covers a vast swath of the cryptocurrencies out there. Whether you simply want to buy into the top seven cryptocurrencies or you prefer to invest in infrastructure coins, which some investors believe to be the future of cryptocurrencies, there is a BB index fund that suits. On top of this, funds vary in the number of coins they include. For example, the B7 focuses on the top 7 currencies, the B50 on the top 50 currencies.
This means that investors can really tailor their portfolio by investing across multiple index funds and finding the balance between risk and payoff that suits them.
Iconomy is a platform dedicated to index funds, so is a great place to look if you’re interested in diversifying your digital assets. It offers a huge range of index funds, some of which have really interesting criteria for the coins they include:
There is the Delta Summit Index (DSI), an index that includes digital currencies based on a vote taken amongst the attendees of the Delta Summit – a leading blockchain innovation event. It launched at the event in October 2018. Whether this is simply a gimmick, or whether pooling knowledge in this way actually gives rise to well-performing fund, only time will tell.
Or the Solidum Prime Index (SOPR), which holds an equal amount (4.35%) of 23 different currencies. This is the first fund included in this article which is not majority bitcoin. The idea here is that this index should be isolated from the risk of any one currency’s value collapsing while still allowing room to capture lesser known altcoins that suddenly rocket in price.
Iconomy has a huge selection of index funds available, with something to suit everyone: From the simplest index fund, a simple split between Bitcoin and Etheruem, right through to really niche offerings.
In the current crypto bear market, it is unsurprising that the best performing funds on Iconomy are the more conservative ones. In fact, the Coinbest 1 index fund (CBST), which markets itself as “the reference point for the most conservative crypto market investors”, is currently outperforming almost every other fund. It focuses on the least volatile assets in the hope that this lack of volatility demonstrates lasting value. At the time of writing, this fund is managing an amount approaching a quarter of a million dollars.
The Cryptos Fund boasts the lowest management fee of all the index funds listed here – just 0.99%. The reason it is so low is that it passively tracks the Cryptocurrencies Index 30, a completely transparent and carefully thought out index that is designed to give an objective picture of the state of the cryptocurrency market.
The Cryptocurrencies Index 30 tracks the thirty top performing currencies by adjusted market cap. If you are looking to deep dive into the data around cryptocurrencies, this is a great place to look, with a host of stats available.
Because the Cryptos funds track this index, when you buy in, you split your investment over a wide portfolio. This protects you from volatility but also casts the net wide enough that you might just catch some stellar performing coin. As such, it strikes a good balance between overly conservative and nail-bitingly risky.
There is no simple answer to the question “which crypto index fund should I invest in?”. The answer, of course, depends on what exactly you want to achieve. If you are new to the world of cryptocurrency, then perhaps the Coinbase Index fund is the way to go – they’re a trusted name in the industry with a proven track record and a user-friendly website.
However, if you’re better versed in the world of cryptocurrency, then perhaps Coinbase’s lack of access to altcoins and their potential for stellar growth will push you more in the direction of some of the wilder index funds that Iconomy has on offer.
In the current bear market, more conservative index funds should perform better. However, should there be another crypto bull run, these index funds may be less well placed to capture that huge growth. Ultimately, it comes down to the amount of risk you are comfortable with.