It’s not unheard of for investors in crypto assets to see 100-fold returns on their investments. The tradeoff of crypto index investing is that while it lowers potential risks in the short term, it also lowers potential returns in the short term. Since the entire crypto market is accounted for in an index token, investors don't have to worry as much about the technical and fundamental analysis of individual crypto assets. Investing in a crypto index token dissuades short-term impulsive selloffs and helps crypto investors hold through the years.įinally, researching individual crypto assets often requires significant technical knowledge, and can be a time-consuming process that some investors might prefer to avoid. often triggers taxable events that investors may want to avoid. Selling and trading crypto assets in the U.S. Investing in an index token helps offset the risks that a crypto investor can be subjected to. When you buy individual crypto assets, if one declines in price, your savings could take a much bigger hit in a short period. Some of the benefits of index funds also apply to index tokens: Traditional index funds offer some benefits to investors compared to individual stock picking. Benefits of Crypto Index Funds and Crypto Index Tokens Note: the role of a fund manager can be automated and decentralized for index tokens through the use of oracles. Similarly, an index token tracks the performance of a specific market index, such as the market cap of the total cryptocurrency asset class. The fund’s manager buys a representative sample of all the stocks and/or bonds in the index that it tracks. Let’s draw some parallels: What Is an Index Fund/Index Token?Īn index mutual fund tracks the performance of a specific market benchmark, like the S&P 500. Herein lies the value of a crypto index token: It offers investors the ability to hold not just an individual crypto asset, which have their own unique set of risks and rewards, but rather hold the value of the entire asset class. Given recent institutional adoption and a strong historical trendline, perhaps individual investors can also benefit from a non-zero allocation of cryptocurrencies in their personal portfolio. In other words, the total market cap of all crypto assets has a value greater than zero.įurthermore, the rise in value of the Total Cryptocurrency Market Cap from $10 billion USD in early 2014 to $1.5 trillion in July 2021 (a 15,000% increase) outlines the outstanding growth of the crypto asset class. This acknowledgement of cryptocurrency as an asset class by financial institutions is an important indicator that the existential risk for crypto assets is largely behind us. Crypto has positioned itself as a new and innovative asset class for public investors and established companies alike many of the most notable banks have started allowing their customers to allocate a portion of their portfolio in crypto.Īll of these developments signal a new era for retail investors as investment opportunities in crypto become mainstream. This influx of new players in the crypto field was especially felt across the market during the bull rally in the first and second quarters of 2021. Traditional options include stocks, bonds, and real estate, but there are also options such as fine art, precious metals, and, perhaps most recently, crypto assets.īetween 20, we have seen a significant number of companies and financial institutions expand their investments into cryptocurrencies. Investors have a variety of options to choose from when designing their portfolio. Crypto: Indexing a New, Mainstream Asset Class
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