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Many started by copying the Bitcoin open-source software and adding some variants to create their own crypto asset. Then slowly over time, many crypto assets were created. In the beginning, roughly 10 years ago, there was only bitcoin. For me to better illustrate the point, let’s take a walk down crypto memory lane. The crypto index fallacy is that you’re getting diversification within the crypto asset class. Only time will tell since crypto is such a new asset class. Additionally, over a long period of time, the passive approach may end up beating most active strategies like in the U.S. As with any index investing, you’re getting lower fees when compared to an active strategy.Ī lot of very smart people are building solid investment products in the space. Each track the crypto market using slightly different calculations. There are several indices to choose from but the top three are: Hold 10 Index (from Bitwise), the Bloomberg Galaxy Crypto Index (from Bloomberg) or the CCI30 Index. You could think of the top 10 as the large caps and the top 20 or top 30 as the mid caps if comparing to an equity index. Most of them track an index of the top 10, 20 or 30 crypto assets by market cap (technically network value). When take a passive investment approach in the crypto space, there are several options to choose from. All of these factors help to create a truly diversified investment vehicle. They are atomic pieces making up a whole.
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Each of these companies help create diversification because each companies has its own teams following their own systems and processes. Furthermore, each of the companies were started by themselves and grew into their position in the index. Each sector is comprised of many similar companies (e.g the technology sector.) This gives investors investors exposure to companies with various sensitivities to economic growth, interest rates, inflation and commodity prices as each sector will react differently to various market dynamics. companies by market cap, which is made of up 10 sectors. It achieves diversification in a variety of ways. One of the components to an equity index that strengthens its value proposition is diversification. They work well, particularly in efficient markets like U.S. The best known example is probably the S&P 500 Index and the various ETFs that follow it like $SPY and $VOO. The indexed investments have low fees because they passively follow a particular index and adjust their holdings based on that underlying index.
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Individual investors, family offices and institutional investors often use this investment strategy. Most people are familiar with passive investing using a stock index. Passive Investment Approach with Stock Indexing But first, let’s set some context with what typical investors think of when using a passive investment strategy. Both of those may be true, but as a contrarian I want to look at where no one else is looking - that is in the liquid market of coins and tokens.įor new crypto investors, I think it’s important to lay out the 2 main approaches to investing and why one may not be what it seems. Or, they mention the private investment or venture investing is still quite active. Many thought that though the speculative side of investing is in a bear market there is a lot of building going on and the industry is still growing. In early 2019, we’re still in a crypto winter, the longest crypto winter ever, actually. There is a lot going on in the crypto markets, as always. Disclaimer: I am an active manager of a crypto fund.