Smart Crypto Portfolio Construction or Crypto Index Fund? Decide After Reading This
Chief Development Officer
Crypto index funds allow you to purchase a share in a portfolio composed of different cryptocurrencies ✅ OSOM
Maybe you have (or haven’t) heard of index funds, portfolio building algorithms, and trading bots in traditional finance, but did you know that the world of crypto has its very own versions of these wealth-management tools?
If you’re new to the world of passive income and wealth management(welcome aboard!), read on to learn about the wealth of options available to you.
Crypto Index Funds: Advantages and Disadvantages
Crypto index funds are essentially the same thing as ordinary index funds found in the traditional stock, bonds or commodity market — but with crypto as underlying assets. Crypto index funds allow you to purchase a share in a portfolio composed of different cryptocurrencies. Many are available today on the traditional markets or as tokenized funds, sometimes compiled by popular crypto exchanges such as Huobi and Coinbase, as well as independent fund management companies.
- Diversified risk exposure by investing in a portfolio composed of a variety of cryptocurrencies
- Often less volatility than direct investment into single cryptocurrency
- Hands-off — no need to track coin prices
- Minimal understanding of crypto required, can sometimes be purchased through your regular stock broker
- Incurs yearly management fees which often range from 0.05% to 3% (independent of performance)
- Some are heavy on only a handful of cryptocurrencies
- If they are mostly investing in the largest crypto, they are missing the potential of most of the market
- The largest crypto tend to be very correlated & have very similar price movements, resulting in limited diversification
- The maturity of the crypto market means that - if you want to draw parallels to traditional finance - it is closer to what venture capitalists usually target as opposed to what you can find on Wall Street. It’s a lot of publicly-traded early-stage ventures, but it’s early stage nonetheless. That doesn’t lend itself quite as well to an “indexing” approach.
- Often requires minimum investment of several thousands €
- the crypto market is small and still relatively inefficient, and it might take a long time for a coin to gain due recognition and make it in the top 30 or 50
- Bitcoin’s dominance is so high that you need to cap the maximum holdings somewhat arbitrarily, or you end up with 80% Bitcoin
- Most indices don’t screen for quality, and you can easily end up with a sizable part of your portfolio in more or less worthless forks with little to no future. BSV still has a relatively large market cap but probably no future
Cryptocurrency Portfolio Construction Algorithm: Advantages and Disadvantages
Though Portfolio Construction Algorithms are not new to the world of traditional finance or crypto (check out our comprehensive assessment of the most popular ones here!), the Crypto Autopilot by OSOM is unique for a number of reasons. It features a world-class AI-powered algorithm that finds growth opportunities within 200 altcoins to increase your holdings. Built with the new-to-crypto folks in mind, it’s also incredibly easy to use. It is the best Portfolio Construction Algorithm available today!
But let’s take a look at some facts:
- Very diversified risk exposure by investing in a wide range of tokens
- Developed alongside experts from the world of traditional finance
- Less volatility than direct investment into single cryptocurrency
- Beginner-friendly and hands-off
- Very low minimum investment required
- No cap on investment amount
- High liquidity: cash out at any time without any fees!
- Proven track record of over 500 days
- Not available to US investors (due to regulations)
Comparison: Most popular Crypto Index Funds
Now let’s see the most popular crypto index funds closely compared to the Crypto Autopilot.
Source: data as of April 2020
What’s better? Crypto Index Funds or Crypto Bots?
You can consider crypto index funds if:
- You live in the US
- You are only really interested in the biggest cryptocurrencies on the market
- You are interested in using an index that is linked to a large exchange
- You want to have exposure to a limited number of cryptocurrencies
- You’d like to invest in an index that has been around for several years
Choose the Crypto Autopilot if:
- You want maximum return potential for lower risk - the best risk-reward return
- You value ease-of-use
- You prefer a simple fee structure and only performance-based fees
- You want exposure to a large chunk of the crypto market in the most cost-effective way
- You want to take advantage of highly undervalued altcoins
- You want something actively managed so your portfolio is managed like a venture capitalist's
Try it now here! Check out our FAQ for more info or simply reach out to us at [email protected].
Chief Development Officer
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Diversification has always been at the heart of effective portfolio risk management as it significantly reduces risk. Here is a look at why crypto might have a place in your portfolios.