On the 6th of March Coinbase announced that they will be launching a “Coinbase Index Fund” and this will be made up of the crypto currencies listed on their G-Dax platform. This drew a lot of negativity on Social media and for the life of me I can’t understand why.
This negativity potentially highlights how little most of the people invested in crypto’s know and/or understand about investing.
Everyone wants their coin to #moon, however it is a lot more difficult to choose that one coin that will 10x or 100x your money, than it is to back a whole index to grow. At the time of writing this the market cap for crypto currencies stand at US$382,698,598,739. If you are invested in a fund that tracks the whole market and the market cap doubled to US$764billion, then you have doubled your money. However, if you were only invested in one coin and that coin didn’t double in value or even lost value, then you have lost out. Yes, there’s the valid argument that your coin could’ve 5x’d or even 10x’d in the same time period. However, if you think how many cryptocurrencies there are out there, what are your odds of choosing that one coin that is going to 10x your money?
By investing in an index fund, you’re spreading your risk, i.e. reducing it, as you are effectively invested in all the coins on that particular index. So, as long as the market cap increases, your investment will increase. If you just had one coin or a few coins, all your hopes are pegged to those few coins and even if the market cap increases, it doesn’t mean your coins will.
The other key thing to keep in mind here is ease of access. Presently the train of thought is that for every US$50 in crypto market capitalisation, there is in fact only US$1 invested. So, what does access have to do with it you may ask?
There are many people out there who have heard of Bitcoin, especially with the run up at the end of 2017; these people want in. Hell, I have countless people asking me to invest their money in crypto for them. Why do they do this, because it is not easy buying cryptos! Registering on an exchange that accepts fiat, sending the fiat, selling the fiat for BTC, sending BTC to a second exchange and then the same process to get the fiat back out. This is why the crypto community needs companies like Coinbase. Yes, their fees are high and their coins are limited, but they bring ease of access.
If it’s easy to access something, you are more likely to do it. The more people do it, the more the market cap increases and so it all snowballs.
So, if you think about it, the Coinbase Index fund should be welcomed with open arms as it will bring more people in to the crypto market place. Additionally, the new money invested will increase the market cap, liquidity and give the opportunity for better returns to us all.
I’ll finish this off with something that Warren Buffet did, now irrespective of his view on Crypto currencies, we can all learn from him when it comes to investing. In 2007 he made a US$1 million bet with a hedge fund Protégé Partners that hedge funds would not out perform an S&P index fund. Guess who won…
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