Many traders and investors involved in cryptocurrency industry directly manage their digital financial assets through various exchangers, data storage systems, hardware wallets and much more. This process makes managing a diversified cryptocurrency portfolio extremely difficult due to a wide selection of tools applied and technical difficulties.
Therefore, index funds are one of the fastest growing cryptocurrency portfolio management services. They were created in order to simplify the life of a novice cryptocurrency investor.
In traditional financial market, an index fund is a portfolio of financial assets that mimics something called an “index.” It is usually obtained from a variety of different parameters, such as past asset performance, total market capitalization, current trading volume or price. Well-known indices include S&P500, NASDAQ Composite and DJIA.
Cryptocurrencies are a new class of financial assets that create a growing demand for new financial products that meet the specific needs of the crypto ecosystem.
Such products as crypto portfolio management systems, rebalanced automated trading and tracking are on the rise. Cryptocurrency index funds provide investors with the possibility to create their own portfolio or track the index. Thus, they get more opportunities for this new and volatile asset class.
This tool is a simple method based on minimal costs. It allows an investor to maximize the use of high profitability in the cryptocurrency market without the risk of processing individual cryptocurrency funds.
It tracks altcoins’ price, capitalization, performance, trading volume, and many other cryptocurrency group variables in the same way that the S&P500 index tracks stocks.
An automated index fund is simply a portfolio created in accordance with the index. Although the indices themselves are updated approximately every second in real time, the funds are usually rebalanced to periodically reflect the most recent index data. This can happen on a monthly basis or when a new cryptocurrency asset is listed. After restoring the balance, transactions are automatically made in accordance with the new index dat.
Thus, cryptocurrency indices help investors switch to passively managed portfolios, allowing them to automate their assets in relation to movements tracked by the index.
Crypto indices are important for several reasons:
With reliable data and historical performance reports, experienced investors can potentially improve their portfolio. At the same time, they can free up invertor’s time using automation processes that indices can offer.
CryptoIndex (CIX100) is a digital currency index fund tracking the Top-100 altcoins selected by Zorax technology. Allegedly, the AI algorithm uses more than 200 factors to refine the rating and altcoins’ selection. The CIX100 automatically changes balance every month and has a built-in function to detect coins that are artificially inflated. The CIX100 also includes industry-specific indexes across industries such as advertising, supply chains, and storage.
The chart above shows that at the beginning of the year 2019 the index level was 0.3711. At the moment, it is equal to 0.5130. That means that during the year we can talk about an increase of the index by 38.24%.
If you look at the Bitcoin chart, then over the same period, its growth amounted to 88.76%, which is more than double the growth of the CIX100 index.
Bitwise is one of the leading suppliers of crypto-index funds. Having first appeared in the field of cryptocurrency management, Bitwise has created one of the world's first cryptocurrency index funds called “Bitwise 10 Private Index Fund”. With well-diversified risk, this fund tracks the 10 largest cryptocurrencies, weighted by a 5-year diluted market capitalization, and the fund is rebalanced every month. Bitwise pays great attention to security and privacy. All coins are securely stored using multi-sig technology.
The graph shows the dynamics of Bitwise 10 for 2019. It can be seen that the growth was 47.5%, which is generally better than the results of CIX100, but still lower than the results of Bitcoin dynamics in 2019.
Crypto20 (C20) is one of the first tokenized crypto index tools. The C20 works as a model of the traditional market for index funds, making it easier for experienced investors and traders to enter the cryptocurrency market without exploring each individual asset. This is a portfolio of the top 20 cryptocurrencies that are predefined and cannot be changed by each individual investor. They also have an established strategy for distribution management and rebalancing.
In the chart above, we see that the value of the Crypto20 index has even decreased compared to the beginning of the year - 0.36 against 0.37, which of course does not play in favor of this tool.
Crypto-index funds are just one example of financial applications currently available to a retail investor. For all its attractiveness, this product does not fulfill its main function - risk diversification. The analysis showed that the indices offered on the market lose in their results to the simple holder of Bitcoin, which indicates that they are ineffective in terms of redistributing the partnership and management strategies. At the same time, a strong correlation of all cryptocurrencies with Bitcoin nullifies the main advantage of index funds - diversification of investments. In fact, the risks of investing are comparable to the purchase of Bitcoin, and the return on these indices is even less.
|Price, USD||24h||7 days|
|Volume 24h, USD||Change 24h|
|Binance||6 578 759 137||65.47%|
|BKEX||5 179 950 330||95.10%|
|MXC||4 960 759 144||70.10%|
|LBank||4 411 155 319||72.59%|
|EtherFlyer||3 755 067 531||75.32%|
|BitForex||3 679 486 247||80.81%|
|TAGZ Exchange||3 485 560 734||11.50%|
|TAGZ||3 376 359 981||0.07%|
|Coinsbit||3 294 204 382||42.96%|
|Fatbtc||3 181 915 602||12.63%|