Benefits of Crypto Index Funds
January 12, 2019
Investing in the crypto market is both rewarding and risky.
A relatively new and emerging technology, the crypto economy is highly volatile and complicated. In order to protect your money and maximize returns, you have to choose the right crypto assets to invest in, but this is easier said than done.
If you are new investor and want to succeed in crypto investing, you need to a lot of reading and research on how the crypto market works. You have to look not just at the opportunities a prospective coin offers but its risks. And most importantly, you have to implement solid risk management strategies to protect your assets.
If you are eager to start investing in crypto but want to minimize the risks or reduce the complexity of trading, you might want to consider investing in a crypto index fund.
What is Crypto Index Fund?
Crypto index fund is a highly strategic investment vehicle that follows the same philosophy originated by John Bogle, a prominent American investor and business magnate. Bogle created the first index mutual fund in 1975 with the aim of obtaining higher returns “with absolutely no effort and minimal expense” and eliminating the risks of an individual stock.
In the traditional stock market, an index consists of a group of stocks that represents the statistical change in this market segment. Stocks are clustered based on specific parameters such as performance, capitalization, price, and other metrics. Some popular index funds in the stock market are Dow Jones Industrial Average, NASDAQ Composite, and S&P500.
In the crypto market, crypto index funds adopt the same philosophy of Bogle. A crypto index fund portfolio consists of several crypto assets picked and distributed based on specified criteria.
When you invest in a crypto index fund, you are betting on the performance of a specific market segment or the performance of the whole market, in contrast to just the performance of certain crypto-assets.
Typically, an index fund issues its own digital coin which represents your share in the portfolio. The portfolio is re-balanced either automatically using smart contracts or manually as scheduled. Some examples are cryptocurrency index fund by Cryptos Fund, Bit20 by Bitshares, Coinbase Index, Crypto20, Bloomberg Galaxy Crypto Index (BCGI), and TaiFu Indexes.
What are the benefits of Crypto Index Fund?
Many investors are bullish about crypto index fund because of the benefits it offers that include:
- Reduces the complexity of an investment decision
- Avoids the time-consuming process of evaluating and trading coins individually
- Maximizes returns by investing on top performing crypto assets
- Lower upfront costs since it is operated digitally
- Cost-effective trading with very low fees, usually below 1 percent
- Simple, user-friendly trading platforms that enable investors to trade directly
- Negates the need to hire third-party operators such as brokers and banks that often charge high commissions
- Decentralized and secured operations since it is conducted in the blockchain
- Digital automation ensures continuous and timely selection, tracking and performance monitoring
- High transactional speed that makes it impermeable to any alteration
Basically, crypto index funds allow investors to gain exposure to the entire crypto market and its opportunities while managing the risks of individual cryptocurrencies. So, if you want to trade or invest in the crypto economy but want to manage the common problems and risks associated with it, you should consider checking out crypto index funds.