How to Index CryptocurrenciessteemCreated with Sketch.

in #index2 years ago (edited)

So you've read my previous post and want to be in the top few percent of investors with decades of statistics from the traditional markets on your side. This post will look at what indexes already exist and what I would recommend to do (Not financial advice though!).

There are now several index funds in the market and having researched them I don't think any are done properly!

Coinbase: https://am.coinbase.com/

  • Only 4 coins
  • Missing 3rd and 5th largest at time of writing
  • Minimum investment is $250,000

Huobi:

  • Doesn't reflect the market capitalization of coins.
  • Second largest in Huobi's own token.

Bletchely Indexes: https://www.bletchleyindexes.com/home

  • Coins included based on 2050 projected market caps
  • Weighting based on current market cap
  • Rebalanced every month

Other notable indexes are:
https://crypto20.com/en/
https://www.iconomi.net/

In general I have two major problems with what's available, firstly with the exception of Bletchely they don't represent the market capitalization of the coins and secondly you don't have the private keys of your coins. I think these are both major issues and therefore I couldn't recommend any of these.

  • I think an index should accurately follow the current market capitalization and private keys should be held by the investor. I also don't agree with Bletchely using the projected 2050 market cap as it adds too much weight to coins with high inflation. The higher inflation creating new supply should reduce the coin price growth.
  • For re-balancing in the fast moving crypto market I'd do the same as Bletchely and rebalance once a month. Re-balancing once a year would be much more tax efficient but this young market is way too dynamic.
  • As for how many coins to include I'd say somewhere between 5 and 20. After number 20 the liquidity is suspect on many coins.
  • Percentage to invest for each coin = 100 * mcap of coin / mcap of all included coins.

At time of posting for an index of the top 10 this would look like:

In the next post I'll show options for implementing and securing an index portfolio.

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