Index funds are all the rage in the traditional investing world, so it comes as no surprise that they are becoming more popular in the cryptocurrency market. Coinbase, one of the top U.S. companies for fiat-to-crypto exchanges, recently released their first cryptocurrency index fund. Index funds allow for the average investor to diversify without the work-heavy process of tracking their own portfolio. Instead, these funds offer value based on holding many assets within a class. Cryptocurrency index funds generally include the top coins by market cap.
However, Coinbase operates in a slightly different way. Notoriously exclusive, the Coinbase platform still includes only a handful of coins total. The fund will consist of Bitcoin, Ethereum, Litecoin and Bitcoin Cash. Coinbase also went on record saying that they would add more coins alongside their inclusion in the original Coinbase exchange.
Who is Eligible to Participate?
Unlike traditional equity index funds, only U.S. accredited investors will be able to participate in the Coinbase crypto fund. This means that the average person would need to go through these investors if they wanted to get involved. The minimum investment is $250k in USD – a considerable sum, and a show of confidence by Coinbase that they will attract investors at this price point. They’ve also listed a maximum of $20 million.
In addition to adding new coins in the future, Coinbase is also eager to create funds that allow smaller investors to participate. While the initial index fund is perfect for more institutional money, it is outside the reach of most of the cryptocurrency community. A smaller scale fund would capture a greater number of investors, if not a greater sum of money.
Alternative Index Funds
Coinbase is not the first to offer a cryptocurrency index fund. ICONOMI is the longest running, with their Digital Asset Array offerings. Arrays can be run by any manager, allowing for enterprising investors to set up and advertise their own arrays on the ICONOMI platform. Unfortunately, these arrays are not available in the U.S. due to regulatory requirements.
Crypto20 is more of a straight forward fund, and the first to be tokenized on exchanges. Users can purchase C20 tokens as a representation of their share of the fund. This makes the entire process simpler, but also comes with some regulatory questions. The gray area that the cryptocurrency market operates in is less than conducive to safe, stable governmental situations. As such, cryptocurrency index funds are still a risky venture – but Coinbase’s fully licensed U.S. operations come the closest thus far to mainstream index funds.
Article By: Adam Stone