Cryptocurrency Index Funds

Deliver Low-Maintenance, Long-Term Value Creation
Cobo Wallet • August 08, 2019


The goal of any index fund is to provide broad market exposure, low operating expenses and low portfolio turnover. To achieve these aims, an index fund portfolio consists of assets allocated in the same proportion as the index the fund is covering so that the price of the fund share closely reflects the index performance. This enables investors to bet on the performance of a market segment or the overall performance market of their chosen market, depending on what the index fund covers.

Furthermore, the value of an index fund is based on pre-defined statistical changes which occur within its asset portfolio, meaning that index funds can be derived from several parameters including asset price, capitalization, performance, and other metrics. As these variables change, the index fund portfolio will be automatically rebalanced, either via a dedicated server or group of financial experts or through a decentralized approach driven by smart contract mechanics, depending on how your chosen index fund is set up. This flexible yet diversified nature of index funds gives investors a broad range of investment options depending on which market segments and development parameters they’d like to invest their money into.

Investing through a cryptocurrency index fund also reduces investor risks, mainly through a high degree of portfolio diversification, which makes it more difficult for you to lose your money due to a single wrong decision. While this means that your potential investment gains will also not be as dramatic as could be the case when investing in individual crypto assets, the downside protection provided by extreme diversification more than compensates for this, and overall crypto index funds are a cost-effective way of protecting your finances against the volatility of this promising yet turbulent market.

And because index funds automatically track variables like price, performance, or capitalization of various cryptocurrencies to determine how to allocate the fund’s money, investors are alleviated from much of the due diligence, custodianship concerns and stress that is involved when trying to speculate on individual assets. As a result, crypto index funds are one of the most user-friendly options for cryptocurrency speculation, particularly for new entrants and investors who prefer a more passive long-term investment strategy.

As cryptocurrency markets continue to mature, there is an increasing need to provide well-structured opportunities which appeal to a broader investor base. Many of these new investment options will inevitably reflect solutions which have successfully enabled traditional asset management, and on that basis, cryptocurrency index funds are a logical outcome in this evolution. With an ever-increasing amount of financial data uploaded onto the blockchain, crypto index funds will continue to become more ubiquitous, transparent, and well-balanced. Investors interested in ongoing developments in the crypto sphere should be aware that a promising new generation of investment opportunities have already arrived.

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