Cryptocurrencies are the latest craze in both the finance and technology worlds. Driven by the developments in blockchain (the technology behind digital coins), investors remain bullish on cryptocurrencies. Today, there are over 2,000 virtual coins that you can invest in and this number continues to grow by the day.
With the ever-growing list of cryptocurrencies, sorting through all of them and deciding which coin to invest in has become even more difficult. But the truth is that out of this long list, there are only around 20 significant digital coins that are worth tracking.
Although there are some very promising virtual coins, top-tier cryptocurrencies offer some degree of stability, security and safety. Furthermore, considering the volatility of the market, investors need to continuously monitor changes to minimize risks and maximize gains.
The good news is that there are index funds that let you track and invest in major crypto assets without going through all the hassles. But before you invest in the crypto index fund, make sure you know these essential things.
Cryptocurrency Index Fund: The Basics
Cryptocurrency index funds work just like conventional index funds in the stock market. These are mutual funds that track the performance of a select basket of digital assets. Identifying and grouping the top performing virtual coins helps minimize the difficulty of comparing and contrasting various virtual securities.
Experts from the Cryptos Fund point out that when you invest, you don’t buy cryptocurrencies instead you become a shareholder of the fund and gain from its potential earnings. So, if you’re planning to “buy into” an index fund, it is essential to carefully look into its estimated individual returns and potential value growth.
What makes cryptocurrency index funds better?
Cryptocurrency index funds allow you to diversify your portfolio thereby mitigating trading risks and maximizing potential gains. With this investment vehicle, you can expand your portfolio to include as many as 50 coins with ease. Those who have been trading virtual coins probably know how time-consuming and challenging the entire process of investing in each crypto-asset individually.
Index funds also enable investors to periodically rebalance their portfolio depending on the current market conditions, risk appetite, and trading discipline. It also lets you add or remove virtual coins such as Bitcoin, Ripple, Ethereum, Litecoin (buy and sell Litecoin here), and other major cryptocurrencies.
Cryptocurrency index funds can be traded actively or used as a passive investment tool. If you want to engage in active trading, you can use any of the automated trading platforms available.
Index funds should not be mistaken with managed funds: the former gives investors the liberty to control their portfolio, while the latter is controlled entirely by a fund manager. Furthermore, cryptocurrency index funds tend to charge lower transaction fees, lack human intervention, and offer better returns. If you don’t want to track your investment regularly, you can buy into an index fund and collect profit when you want.
What are the popular cryptocurrency index funds?
Alongside the popularity of the virtual coins is the growing number of cryptocurrency index funds. Some of the most reputable are Coinbase Index Fund, Crypto Index Fund by Cryptos Fund, Iconomi – BLX by Columbus Capital Ltd., Hold10 Index Fund by Bitwise, and Crypt20, among others. These funds follow unique sets of virtual securities (ranging from five to fifty) from different sectors. When comparing these investment vehicles, you need to look at their trading tools and services, the minimum investment required, market capitalization, and fees.
Why invest in cryptocurrency index funds?
Cryptocurrency index funds offer a great investment vehicle for both novice and veteran investors and traders. Aside from minimizing the number of virtual coins that you need to track, you also find extra information about each digital security, which enables you to arrive at better trading decisions.
Compared to investing your money into only one digital coin, you gain better returns with a diversified portfolio. This is because the trading risks are spread out, thereby dispersing the possibility of major losses.
Plus, spreading out your investment capital allows you to profit from the entire performance of the market and not solely on a number of securities.
If you want to gain from the cryptocurrency craze but are afraid to lose out, you should consider investing in cryptocurrency index funds.
