What You Need to Know About Cryptocurrency Index Funds
Cryptocurrencies are making a wave in both the tech and finance worlds. Every day, new cryptocurrencies are launched. As of date, there are around 1,658 cryptocurrencies that you can invest in.
As digital coins continue to flood the crypto market, choosing which cryptocurrency to invest in becomes more and more complicated. Of the 1,658 cryptocurrencies, only 20 are considered significant accounting to 89% of the total market. Furthermore, considering the volatility of the market, investors need to carefully monitor the cryptocurrencies they’ve invested in to maximize their gains and mitigate risks.
This is where cryptocurrency index funds come to the picture.
What is cryptocurrency index fund?
Cryptocurrency index funds take out the hassle of comparing and contrasting the numerous investment choices. Just like traditional index funds in the stock market, cryptocurrency index funds are mutual funds intended to track the performance of a diversified group of digital securities. Using cryptocurrency index fund, you can follow the best-performing tokens and coins in the market.
Usually, investors diversify their portfolio of cryptocurrencies to mitigate trading risks – and a crypto index fund offers the best investment vehicle. If you’ve been in crypto-trading, you probably know the complicated and time-consuming process of investing in each coin. Cryptocurrency index funds enable you to invest in as many as 50 cryptocurrencies without the hassle of placing investments on each coin individually.
In index funds, you can rebalance your portfolio on a monthly, weekly or daily schedule depending on your trading discipline, risk appetite, and market conditions. Investors can choose to include Bitcoin, Ethereum, Litecoin, Ripple, and other popular cryptocurrencies.
In cryptocurrency index fund, you don’t actually buy the coins but rather the shares – that’s why investing in an index fund is called “buying into” the fund. Since you will potentially earn from the profits of the fund, it is vital that you look at the potential for value growth and the expected individual returns of the fund when planning to invest in it.
An index fund can either be actively traded or a passive investment vehicle. Normally, actively traded funds use automated trading platforms. Compared to managed funds, index funds tend to be more beneficial as they come with lower trading fees, better returns, and limited human intervention. Meanwhile, others don’t actively trade their portfolio of cryptocurrencies. They just collect the profit after some time.
There are a number of cryptocurrency index funds that you can buy into. Some of the largest and most recognized are Crypto Index Fund by Cryptos Fund, Coinbase Index Fund, Crypto20, Hold10 Index Fund by Bitwise, Iconomi – BLX by Columbus Capital Ltd., William Mougayar High Growth Cryptoassets Index, Digital Currency Index, Symmetry Fund, Astronaut Capital, and AgreCoin. Each of these index funds tracks a basket of digital currencies that ranges from five to as many as fifty. They differ in terms of market capitalization, the minimum amount of investment, trading tools and services, and fees.
A lot of digital coin investors and traders use indexes to approximate the gains they can get in the future from each of their coin and token investments. These funds also allow investors to put their money in economic growth cryptocurrencies sans complications by buying a portfolio of coins.
Why consider cryptocurrency index funds?
Cryptocurrency index funds are an investment vehicle to benefit both the new and veteran traders. Given the extra information about a digital currency, you’ll be able to come up with better investment decisions. Generally, investing in through an index fund can help you gain better returns as compared to just one cryptocurrency. We can’t deny the fact that the crypto market is very erratic and there is always the risk of losses (major losses.) By dispersing your investment money in a basket of tokens and coins, you can also disperse the possibility of major losses.
If you want to invest in the digital coins economy but have a very low-risk appetite, you may want to consider putting your investment capital in cryptocurrency index funds.