A cryptocurrency index fund is a collection of different cryptocurrencies that you can invest in. They vary in their goals, assets, and accessibility, but provide exposure to an entirely new asset class.
Cryptocurrency is inherently risky. It’s one of the highest risk investments you can make, but what if you could reduce that risk and increase your exposure to crypto?
How Stock Index Funds Work
A stock index fund is a portfolio of equities that a fund owns. The fund uses the money pooled by investors who buy into the fund to purchase shares of companies on the stock market.
Index funds typically track an underlying index like the S&P 500. The makeup of the index funds portfolio has the goal of closely tracking an index.
Index funds allow the investor exposure to a large number of stocks in many different markets at a single price point.
There are a lot of advantages to index stock investing and it’s a practice that I highly recommend.
How Crypto Index Funds Work
Crypto index funds operate differently depending on the platform and goals of the index fund. It a collection of cryptocurrencies like Bitcoin, Ethereum, Litecoin, Ripple, etc… depending on the fund.
The crypto index fund typically provides investors exposure to many cryptocurrencies by purchasing just a single fund. An example is a Crypto20 fund. Crypto20 holds 20 of the top cryptocurrencies and you can invest by purchasing the C20 token on a crypto exchange.
Top Cryptocurrency Index Funds
Below are the top index funds available to investors today. None of them are traded on the stock market. You will need to purchase them on the specific exchanges they are listed.
Note: this is inherently risky and I’m not condoning such risky financial behavior.
Crypto20 (C20) was one of the first tokenized crypto index funds. C20 holds a portfolio of the top 20 cryptocurrencies.
Quick facts about Crypto20:
Trade 24/7. There are no market hours for C20 and there are no fees for exiting your position.
5% annual expense ratio. The Crypto20 expense ratio beats more traditional stock index fund expense ratios.
Passive crypto investing. The fund portfolio will rebalance itself every week without requiring you to take any action.
It’s transparent. Crypto20 is trackable on the blockchain. You can track all of the transactions and portfolio assets in real-time.
Ember fund describes itself as a fully-non custodial, hedge fund crypto platform. It provides you the ability to own your assets rather than a third party.
Download the Ember Fund App and see it for yourself.
Because your funds are held securely on your device and not by Ember, you may lose your funds if you lose your device or uninstall the Ember Fund app. The app requires you to acknowledge this and suggests writing down your username and password and storing it in a safe place.
Ember Fund only requires a minimum of $100 investment, but doesn’t let the user choose their own index or create their own portfolio. Users choose from predefined portfolios created by the Ember Fund.
You may purchase any of the funds with Bitcoin and you may hold up to 3 different portfolios at any time.
Ember Fund would be a good place for a beginner to get started investing in Cryptocurrency. With their easy to use app and decentralized storage, it’s a modern approach to index fund investing.
CryptoIndex (CIX 100) is an AI powered index fund that tracks the top 100 cryptocurrencies. It auto rebalances every month and is capable of detecting artificially inflated coins.
CryptoIndex uses an Ethereum based ERC-20 token (CIX-100) similar to Crypto20. Unlike Crypto20, the CryptoIndex provides investors with a fully realized trading platform and analytics.
Bitwise created one of the first cryptocurrency index funds (Bitwise 10) and is one of the leading crypto investing platforms.
Bitwise 10 tracks the 10 largest cryptocurrencies by market capitalization and rebalances each month.
Bitwise isn’t for the new investor. It has a minimum investment of $25,000, an expense ratio of 2.5% and an early withdrawal fee of 3% (12 months).
Shrimpy allows you to create your own crypto index fund based on a variety of parameters. You can even set your own rebalance frequency.
Shrimpy is a free platform that allows you to index, rebalance and trade, but adds features for a monthly fee. These features include a social network, market insights and back testing.
Shrimpy is very DIY and I wouldn’t recommend it for the investor new to cryptocurrency. For the seasoned veterans, it’s a powerful tool that allows for a lot of customization.
What “Tokenized” Means
In the case of the Crypto20 index fund, it’s tokenized. This means that there is a single Ethereum based ERC-20 token called C20.
When you purchase that token, you’re purchasing the crypto index fund. Just the same as when you purchase the Vanguard Total Stock Market Index Fund (VTSAX) in your brokerage account.
Cryptocurrency and Taxes
When I filed my taxes in 2020 for the 2019 tax season, I saw for the first time a question that asked if I had purchased any cryptocurrency.
Just because it lives outside of the SEC and U.S. Federal Government doesn’t meant that it’s not exempt from taxes. If you profit from any cryptocurrency investment, you will need to report that on your taxes.
Of course, consult with a tax professional for guidance on the current rules and regulations regarding cryptocurrency investing.
Crypto Index Fund Risks
Cryptocurrency is inherently risky. It’s far more risky than any fiat based investment you can make today.
The reason crypto is so risky is simply because it’s an unproven, new technology that could open you up to risks other than market risk. This includes, identity theft, lost funds, price manipulation etc…
I believe cryptocurrency has a place in the future of investing and monetary policy, but nobody knows what that looks like today. I don’t recommend anyone invest money in cryptocurrency that they’re not willing to lose, because that’s a real possibility.
Disclaimer: firethefamily.com is not responsible for any losses or damages incurred as a result from investing in any asset including cryptocurrency. Any investment made is done at your own risk.
Cryptocurrency has been out long enough to be a household name. The wild swings of Bitcoin and Ethereum has given them their due attention.
Any savvy investor should be paying attention to this asset class as it develops. It could very well become the future of investing.
Investors now have more options than ever when it comes to investing in cryptocurrency. If you are going to take the leap and become a crypto investor, I recommend something like Crypto20, CryptoIndex or Ember Fund to get started.
Keep in mind the risks associated with cryptocurrency are massive. There is a real loss of losing your investment.
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