Coinbase to Introduce Index Fund

Coinbase announced today that they will be introducing a new cryptocurrency index fund. While there isnt all the information out there yet on how exactly the fund will be structured, they have announced somethings. I want to give my opinion on some of the good things the bad things and the potential hazards that this fund could have. In addition I want to talk about the risks that such a fund could have if you were to be an investor in it.

Lets start with the positive and talk about the good things that this fund does. The first thing is they are requiring you to be an accredited investor, which in the US means 200k single income, 300k joint income or just a net worth of 1 million, not counting your primary residence. In my opinion this is a good thing because there are many risks associated with this fund and having it available to anyone is just begging for people to put more in than they can afford to lose, then suing coinbase later on if they lose money. This will probably be similar to GBTC where you can sell shares on the open market after x amount of time, but because you are investing in an index of coins, left up to Coinbase's discretion, you potentially are taking on more risk.

This leads me to a bit of the negative and the positive regarding the fund which is what coins actually go into it. Currently Coinbase says that it will represent what they sell on their exchange, but what if they choose to sell more coins in the future, potentially coins you dont want exposure to. I think people will jump on board initially but what happens if coinbase starts adding a ton of coins and suddenly your risk skyrockets. Also Coinbase is being sued by multiple people right now for allegedly pumping and earning a ton of money on adding certain coins to their exchange. Its a possibility that adding new coins to the index fund could be considered a type of market manipulation.

Now lets get to the negatives of the fund, which I think primarily is going to be the fees which are 2% per year. That compounds very quickly if you hold a fund for a decent amount of time so you will see the underlying assets slowly get eaten away. Next is that they are holding the coins themselves which I personally see as a negative because although Coinbase talks about insurance, I think they would have a real hard time trying to collect if something were to happen. Coinbase is no stranger to hacks in the past so you expose yourself to risk that the exchange itself loses funds and they try to tie the index fund money together. You could potentially lose everything and be in a MT. Gox type situation. This is worrying to say the least.

Overall I think the fund is at least a very interesting development in the space and I do want to see it launched. Im curious where it is going to be traded and if you are going to be allowed to invest after a certain period of time, but I think they are taking precaution because it is going to be an experiment. There is a real chance that this thing ends up being a disaster. I will be on the sidelines like many others, but I do hope that it brings some investment in from big players who are stuck only investing in GBTC because of federal regulation, even if the investments will be split with other coins.

-Calaber24p