Strategies For Investing In Crypto Index Funds

Crypto indexes and funds have been gaining momentum in recent years among experienced investors. A cryptocurrency index is a basket of cryptocurrencies grouped together by market weightings, while a crypto managed fund tracks the performance of another index. The first crypto index fund publicly listed on OTC markets was the Bitwise 10 Index Fund (BITW), which tracks the Bitwise 10 Large Cap Crypto Index, consisting of the top 10 cryptocurrencies by market capitalization. Crypto indexes can provide benefits such as reduced risk, diversification, and predictability compared to trading individual coins. However, there are also drawbacks, including lower profitability and limited accessibility. When considering how to invest in crypto indexes, it is important to research and compare different brokers, eligibility requirements, and additional tools that can enhance your trading experience.

Crypto Index Funds: Bitwise, Coinbase, and more

Crypto index funds are a great way to gain exposure to a diversified basket of digital assets via a single purchase. Crypto index funds are created to offer exposure to the digital asset marketplace but in a diversified manner. Instead of investing in multiple cryptocurrencies directly through an exchange, index funds offer access to a basket of digital assets through a single trade.

Bitwise is a leading name in the crypto index fund space. It offers the Bitwise 10 Crypto Index Fund (BITW) which tracks the 10 largest cryptocurrencies by market capitalization. The fund has generated returns of 320% since its inception in November 2017. Bitwise also offers the Bitwise DeFi Crypto Index Fund (BDEFI) which offers exposure to the growth of decentralized finance. The fund contains 10 notable DeFi projects at various weights, with Uniswap being the heaviest at almost 44%.

The Bloomberg Galaxy Crypto Index Fund (BGCI) is another popular crypto index fund. It contains 12 digital currencies and is weighted towards market capitalization, with Bitcoin and Ethereum collectively weighted at 70%.

The Nasdaq Crypto Index Fund (NCI) is a popular option for those seeking diversification through a single, managed investment. Nasdaq focuses on leading cryptocurrencies across 11 projects, with Bitcoin and Ethereum weighted at over 67% and 22% respectively, which represents nearly 90% of the overall portfolio.

The Fidelity Crypto Industry and Digital Payments Index (FDIG) is a crypto index fund that appeals to investors who feel more comfortable with stocks. The fund specializes exclusively in stocks that operate in the blockchain technology and cryptocurrency industry. The largest holdings in this portfolio are Coinbase and Marathon Digital Holdings.

Crypto index funds offer a seamless way to gain exposure to a diversified portfolio of cryptocurrencies. They are a passive investment strategy that is professionally managed. However, they tend to have higher fees compared to buying individual cryptocurrencies, and they may not offer as much diversification as investors might expect, with the majority of the portfolio often weighted towards Bitcoin and Ethereum.

Crypto Index Brokers: eToro, NinjaTrader, CMC Markets, etc

Crypto indexes are baskets of cryptocurrencies grouped by market weightings, and crypto index funds track the performance of these indexes. Crypto index funds have gained popularity in recent years among experienced investors.

Some of the top crypto index brokers include eToro, NinjaTrader, and CMC Markets. Here's an overview of each:

EToro

EToro is a highly trusted broker with a Trust Score of 90 out of 99. It is authorised by three Tier-1 regulators: the Australian Securities & Exchange Commission (ASIC), the Financial Conduct Authority (FCA), and regulated in the European Union via the MiFID passporting system. eToro offers a user-friendly copy-trading platform, allowing traders to copy the trades of experienced investors. The minimum deposit requirement is $50-$10,000, and the platform offers a wide range of funding options, including Visa/Mastercard, Bank Wire, PayPal, Skrill, and Neteller. eToro provides access to over 30 million users and allows investing in 6,000+ instruments with advanced trading tools.

NinjaTrader

NinjaTrader is a trading platform that offers various instruments, including forex, stocks, options, commodities, futures, and crypto. It provides access to multiple brokers and supports various payment methods, such as ACH Transfer, Debit Card, Wire Transfer, and more.

CMC Markets

CMC Markets is considered highly trusted, with a Trust Score of 99 out of 99. It is authorised by five Tier-1 regulators and offers a diverse range of investment options, including forex, CFDs, stocks, indices, commodities, and cryptocurrencies. CMC Markets provides access to over 12,000 tradeable instruments and has a minimum deposit requirement of $0. The platform accepts funding options such as Visa/Mastercard (Credit/Debit), Bank Wire, and PayPal.

These brokers provide users with the ability to invest in a range of crypto indexes and funds, each with its unique features, tools, and requirements. It is important to research and compare these brokers to determine which one aligns best with your investment goals and strategies.

Crypto Index Providers: IG, Capital.com, Binance, etc

When it comes to investing in a crypto index, there are several providers that offer this service, each with its own unique features and benefits. Here's an overview of some of the popular crypto index providers:

IG

IG is a well-established trading platform that offers a Crypto 10 index CFD, allowing investors to gain exposure to the top ten cryptocurrencies, weighted by market capitalisation. With IG, you can trade CFDs on 11 major cryptocurrencies, two crypto crosses, and their crypto index. IG provides a range of tools for in-depth analysis, including interactive charts and risk management tools. They also offer low spreads and ultra-fast order execution on their award-winning platform. It's important to note that trading CFDs comes with a high risk of losing money due to leverage, so investors should fully understand the risks involved.

Capital.com

Capital.com is a trading platform that provides crypto index analysis to help traders make informed decisions. They offer an execution-only service, and their website includes technical analysis and price predictions for various cryptocurrencies. While they do not provide direct investment advice, their analysis can assist traders in understanding market trends and making their own trading decisions. Capital.com also offers a demo account for those who want to practice trading without risking real money.

Binance

Binance is the world's leading cryptocurrency exchange, with over 169 million registered users in 180 countries. They offer a wide range of products, including the ability to trade hundreds of cryptocurrencies on Spot, Margin, Futures, and Options markets. Binance also provides features such as P2P trading, earning interest on crypto, token launches, and an NFT marketplace. With low fees and a variety of payment options, Binance is a popular choice for crypto enthusiasts. Their platform also includes educational resources and market analysis tools to help traders make informed decisions.

Each of these providers offers different features and services, so investors should carefully consider their own needs and risk tolerance before choosing a crypto index provider. It is always important to remember that trading cryptocurrencies and CFDs carries a high level of risk and may not be suitable for all investors.

Crypto ETFs: Blockchain, Amplify Transformational Data Sharing, etc

Crypto ETFs are a popular and convenient way to access the crypto asset class. Crypto ETFs are exchange-traded funds that focus on pivotal areas in the crypto market. They are professionally managed funds that provide investors with exposure to a basket of cryptocurrencies or blockchain-related companies.

One example of a Crypto ETF is the Bitwise Ethereum ETF (ETHW). This ETF is backed by leading institutions and individuals and offers investors a way to access the Ethereum cryptocurrency without having to purchase and store it directly. It is important to note that investing in crypto ETFs like the Bitwise Ethereum ETF comes with a high degree of risk and is not suitable for all investors.

Another notable Crypto ETF is the Amplify Transformational Data Sharing ETF (BLOK). BLOK is an actively managed ETF that invests in companies actively involved in the development and utilisation of blockchain technologies. It provides investors with exposure to a global portfolio of companies at the forefront of blockchain innovation. BLOK's top holdings include well-known companies like Microsoft, Google-parent Alphabet, and IBM, as well as international firms such as GMO Internet and JD.com.

The benefits of investing in Crypto ETFs like BLOK include convenience, transparency, and access to the blockchain and crypto ecosystem without the complexities of direct investment. However, it is important to consider the risks associated with investing in a niche ETF targeting a narrow slice of the economy. There may be investment overlap with broad-based tech ETFs, and the performance of the fund is heavily influenced by the volatile nature of the crypto market.

Overall, Crypto ETFs offer investors a way to gain exposure to the crypto market and benefit from its growth potential while mitigating some of the risks associated with direct investments in cryptocurrencies. They are a useful tool for investors who want to diversify their portfolios and access the crypto ecosystem in a more regulated and secure manner.

Crypto Index Workings: Price/Market Cap Weighting, Predictability, etc

A crypto index is a basket of cryptocurrencies grouped together and weighted by market capitalisation. There are two major ways that crypto indexes are created: price weighting and market cap weighting. Price weighting occurs when higher-priced assets have a greater influence on the movement of the index than lower-priced ones. Market cap weighting is where assets with the largest capitalisation (their aggregate valuation) move the index the most.

The Crypto Currencies Index (CCi30) is a good example of a market cap-weighted index. It tracks the 30 largest cryptocurrencies by market capitalisation, excluding stablecoins. The index is calculated in real-time, and its starting value was set at 100 on 1 January 2015. The weight of each cryptocurrency in the index is determined by the square root of its adjusted market capitalisation. This ensures that the index is not dominated by the top two cryptocurrencies, nor does it give too much weight to smaller, illiquid cryptocurrencies.

The Binance CoinMarketCap (CMC) Top 10 Equal-Weighted Index, on the other hand, tracks the top 10 digital assets by market capitalisation, relative to the base currency of USD. This index is equally weighted and is rebalanced on a monthly basis.

Crypto indexes based on algorithmic tracking and real-time market analysis tend to be more predictable than trading single assets. For example, the Crypto Fear & Greed Index published by Alternative is a sentiment tool that tracks Bitcoin data relating to volatility, volume, social media, surveys, dominance and trends over time. It acts as a barometer between 0 and 100, indicating the emotional influences behind extreme fear and extreme greed.

In terms of investing in a crypto index, there are some key benefits to consider. Firstly, it saves time as investors do not need to track the cryptocurrency market or keep up with world news updates on individual coins. Secondly, it reduces risk as investors are not exposed to the volatility of trading in a single coin. Thirdly, it offers diversification as a crypto index typically includes a basket of cryptocurrencies. Finally, it is more predictable, as mentioned earlier.

However, there are also some risks and limitations to trading in crypto indexes. Firstly, profitability may be lower, with small returns likely within shorter time frames. Secondly, accessibility may be an issue as many crypto indexes are only available to professional traders with high minimum capital investment requirements.

Frequently asked questions