In recent years, cryptocurrencies have gained significant attention from investors and the general public alike. With the rise of digital assets, innovative financial products have emerged to cater to the growing demand. One such product is the crypto Exchange-Traded Product (ETP), specifically crypto index ETPs.
(ETPs) allow investors to gain exposure to the price movements of an underlying asset without having to own the asset itself. ETPs are flexible, and can reference a single asset (a specific token such as Bitcoin, a commodity like gold), or a collection of multiple assets - also known as an index. In this article, we will focus on crypto indexes ETPs and their benefits.
An index is a collection of assets that represents either an entire market or a subsection of it. It is common for an index to group assets based on a range of factors, such as type, size, or growth.
Investors might already be familiar with major crypto assets such as Bitcoin and Ethereum, but they can not always dedicate time to follow crypto news outlets and stay on top of market phases. And crypto moves fast. By investing in an ETP that tracks an index, they can be passively exposed to this dynamic market.
Exchange-Traded Products (ETPs) are securities that track the performance of an underlying asset (or basket of assets) which can be traded on securities exchanges. ETPs are among investors’ favourite financial products because they are easy to access through their preferred broker, convenient to manage, and regulated. They are a great option to be exposed to crypto assets - check out our companion article for more details on their structure and benefits.
Some Exchange Traded Products (ETPs) are built to track the performance of an index, to help investors gain exposure to a diversified range of assets with a single trade. Crypto Index ETPs offer the same advantages as single-asset ETPs, but also bring other dimensions to the table.
Keeping up to date with the fast-paced crypto market is no easy task. Investors might feel overwhelmed by the breadth of information available: will this latest piece of news impact my investment? Is this upcoming digital asset worth its price? Should I buy or sell?
Crypto index ETPs free investors of this pressure. By investing in a single product (the crypto index ETP), they are exposed to multiple assets. For example, depending on the underlying index, these assets might represent:
Specific themes within the crypto market, such as smart contracts, gaming, NFTs, the metaverse…
A selection of leading assets
Thanks to crypto index ETPs, investors are a few clicks away from accessing a diversified basket of assets, without the arduous work of handpicking assets to invest in.
This opportunity for easy diversification comes with a key benefit: helping investors limit concentration risk.
Indeed, through crypto index ETPs, investors effectively gain exposure to a diversified portfolio of cryptocurrencies condensed in a single product, rather than putting all their eggs in one basket with a single cryptocurrency investment.
This diversification helps to mitigate the risk of one cryptocurrency underperforming or crashing, as the losses from one holding can be offset by gains in other holdings.
When building a portfolio, it’s important to define an investment plan featuring the desired allocation for each asset. But as market conditions change, certain asset classes may outperform or underperform others, causing the portfolio to become unbalanced. Investors have to constantly monitor the market, analyse trends, and make decisions to ensure their portfolio stays in line with their investment objectives.
Automatic rebalancing ensures that pre-defined allocations are maintained over time passively - in other words, the ETP does the work for you.
Automatic rebalancing can help reduce concentration risk. Rebalancing ensures that the portfolio is never overly concentrated in a single asset class, potentially mitigating risk and impacting performance.
Crypto Index ETPs make rebalancing straightforward because they automatically rebalance the assets they are tracking at regular intervals - in line with the underlying index that they track. Automatic rebalancing ensures Crypto Index ETPs are a passive exposure to the crypto market, as investors don't need to rebalance assets themselves. Moreover, dynamic allocation ensures investors are always exposed to new market trends.
CoinShares currently offers two crypto index ETPs: Top10 Crypto Market ETP and Smart Contract Platform ETP. Both ETPs replicate indexes designed by CoinShares & Compass Financial Technologies.
The provides an easy and cost-efficient access to the crypto market in one single product. It targets the ten biggest crypto assets by market capitalization.
The focuses on the infrastructure underlying the crypto ecosystem. Through the 10 crypto assets tracked by the index, investors can benefit from the development of the promising dApps, web3, DeFi and NFT projects.
The weight of each asset in both indexes is proportional to its market capitalization capped at 35% max of the allocation. Market capitalization-based weighting ensures that assets leading the market or thematic have a greater representation in the index, providing a more accurate tracking compared to an equal weighting approach.
The indexes tracked by the ETPs are designed to help investors access the digital asset market in an convenient and secure way:
Developed by digital asset experts CoinShares and Compass Financial Technologies
Rebalancing occurs each quarter in order to catch emerging market trends. This happens automatically, with no action required on the investor’s part.
Regulated indexes & instruments
Both indexes are Benchmark Regulation (BMR) compliant and listed on Deutsche Börse Xetra, Europe’s leading ETP trading venue. As regulated assets, crypto ETPs comply with strict financial and accounting rules, designed with investor protection in mind.
A cost-effective option for investors looking for broad or thematic crypto exposure:
0% management fee
CoinShares has reduced its Crypto Index ETPs’ management fees to 0%, making them the most cost-effective Crypto Index ETPs available in Europe.
Crypto Index ETPs are a convenient, cost-effective and regulated way to be exposed to the thriving universe of crypto and diversify your portfolio.
However, keep in mind that investing in crypto-ETPs comes with risks, in particular of volatility and loss of capital.
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