If you believe in the long-term future of cryptocurrency, it makes sense to expose yourself to the crypto markets.
With the growing popularity of crypto index funds, that’s easier than ever.
What Is an Index Fund?
Index funds are commonplace in the world of equities and bonds. They track an index—for example, the S&P 500—by holding a basket of the underlying stocks.
Depending on the fund, the balance of the stocks might be weighted towards specific sectors, companies, or market caps.
Index funds don’t try to beat the market; they track the market. As such, fees are lower than actively managed funds, and returns are often better.
A crypto index fund is no different. It offers a way to gain exposure to a chunk of the crypto market without worrying about rebalancing your portfolio or storing dozens of different coins. If the market goes up, the fund value will rise. If the market goes down, it will decrease.
Unfortunately, despite several attempts from multiple companies—including the promising Bakkt app—the US Securities and Exchange Commission (SEC) is yet to approve an exchange-traded crypto index fund. As such, crypto index funds work slightly differently from equity index funds.
Here are some of the best crypto index funds that you can invest in today.
Crypto20 is a tokenized crypto index fund. It works by using the funds raised from investors to buy the underlying crypto assets and tracks the top 20 cryptocurrencies by market cap.
Because the fund is tokenized, you only hold a single crypto token ($C20) yet have exposure to all 20 coins.
You can store C20 in your preferred choice of crypto wallet. It is an ERC-20 coin, so you can send it to any Ethereum address, and it is compatible with the major hardware wallets like the Ledger Nano X.
Unlike some crypto index funds, Crypto20 does not have broker fees or exit fees. Importantly, there’s also no minimum investment amount. The current fund value is more than $30 million.
You can buy Crypto20 on HitBTC, ForkDelta, P2PB2B, DFlow, and OVEX.
Created by Bitwise Asset Management in 2017, the Bitwise 10 ($BIT10) crypto index fund has historically been aimed at professional investors—it had a minimum investment amount of $25,000.
However, in late 2018, Bitwise signed a licensing agreement with investment app Abra. For the first time, the fund became available to regular investors.
Bitwise 10 only tracks the top 10 funds by market cap; the rebalancing happens every month. The weighting is skewed towards the bigger coins. At the time of writing, 68 percent of the fund is Bitcoin, 10 percent is Ethereum, 7 percent Ripple, and the remaining 15 percent is split between the other seven coins.
The minimum investment in Bitwise 10 via Abra is only $5. Like Crypto20, there are no fees.
Importantly, you cannot withdraw your BIT10 from the Abra app. Some people may be uncomfortable with the security implications that entails.
Unfortunately, strict regulatory requirements in the US mean the Abra version of the fund is not available to US citizens or residents.
Bitwise 20, Bitwise 70, and Bitwise 100
Bitwise offers three other funds via its website. Bitwise 20 tracks the top 20 tokens, Bitwise 70 tracks the top 70, and Bitwise 100 tracks the top 100.
Unfortunately, none of the three funds are available via Abra, so you will need to meet the $25,000 minimum investment threshold.
The more coins an index fund tracks, the more exposure to the total crypto market you have. Given the volatility we see in mid-cap and low-cap coins, these funds arguably carry more risk than the Bitwise 10 fund.
Only you can decide what level risk you are comfortable within your portfolio.
ICONOMI offers a selection of crypto funds managed by “experts.” Some offer exposure to the entire crypto space; others focus on a particular sector or type of coin.
However, the ICONOMI crypto index funds are much more expensive than using Crypto20 or BIT10. Management fees can be as much as six percent, and a typical exit fee is 0.5 percent. As such, the funds are not suitable for short-term investors; the fees will kill your profits.
Initial deposits into the ICONOMI platform can be made in euros, Bitcoin, or Ether. The minimum investment for any of the funds is $10.
Hodlbot isn’t an index fund in the traditional sense. It’s not managed by a central organization—instead, it is a tool which allows you to create your own index fund. It’s an excellent tool for people in the United States who may be banned from investing in other crypto index funds.
The Hodlbot app syncs with your Binance account. You can either create your own portfolio using the app’s advanced metrics and analysis tools, or you can use one of Hodlbot’s pre-built indexes.
You are responsible for managing the weighting, though Hodlbot offers automated market cap and square root market cap options if you want to take a less hands-on approach.
There’s also a historical back-testing tool so you can see how you proposed portfolio would have performed in previous markets.
If your portfolio is worth less than $500, Hodlbot is free to use. For more valuable portfolios, it costs $10 per month.
Are Crypto Index Funds a Sound Investment?
If you believe in crypto’s future yet have no trading experience, index-tracking funds are a smart investment for a lot of people.
Just make sure you’re clear about your personal timeframes, profit goals, and risk tolerance before you make your decision.
(Disclaimer: Blocks Decoded does not provide financial advice. Do your own research before investing in any of the crypto index funds discussed in this article.)