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27 May 2020
The post The 5 Best Automated Cryptocurrency Index Funds (Updated)
Cryptocurrencies are rapidly gaining traction with the general public. Regardless of the 2018 bear market, the 24h trading volume is still sitting at a comfortable $77 billion USD across the markets tracked by CoinMarketCap. This is no small feat. While the traditional financial market still towers over the current crypto space, it’s only a matter of time before heads start to turn and traditional investors are converted to the new age of digital assets.
One of the main differences between traditional finance and the cryptocurrency market is the way these assets are governed. True cryptocurrencies are governed by a ‘decentralized’ model, which means there are no central authorities that can regulate or control the asset. By their nature, cryptocurrencies empower the individual to manage their own funds and places a large amount of responsibility into the hands of the user.
The buying and selling of crypto assets are generally done on an exchange.
Many people involved in cryptocurrencies directly manage their assets across multiple different exchanges, cold storage, hardware wallets, and more. This complex management process makes it exceptionally difficult to manage a diverse crypto portfolio due to the range of tools and complexity with keeping track of everything going on.
Thankfully, there are some companies jumping into the market to provide products and services which make the investment process easier. One of the fastest-growing segments of crypto portfolio management is the use of index funds to automate the process of investing in crypto assets for the individual.
In traditional finance, an index fund is actually a portfolio of assets that mimics something called an ‘index’, that is typically derived from a range of different parameters like past performance, total market cap, or price. Famous indexes include S&P 500, NASDAQ Composite, and DJIA.
Vanguard 500 (VFIAX) is the largest index fund in the world, which tracks the performance and replicates the asset ratios and portfolios of S&P 500 index. Index funds come with a lot of benefits like healthy diversification for gaining broad market exposure, low commission and fee structure, and lower management overhead to name a few.
Cryptocurrencies are an emerging asset class with a significant amount of capital flowing into the market. This inward capital flow is creating an increasing demand for new financial products that cater to the specific needs of the crypto ecosystem.
Products such as crypto portfolio management, automated trading with rebalancing, and tracking are on the rise. Crypto index funds provide an opportunity for investors to build their own portfolio or track an index thereby gaining more exposure to this new and volatile asset class.
In the next sections, we will discuss some of the famous automated crypto index funds and tools that can help you automate and manage your own crypto investment portfolio.
Crypto20 (C20) is one of the first tokenized crypto index funds. C20 works as a model of the traditional index fund market, making it easier for seasoned investors and traders to jump into the crypto investment market without needing to research each individual asset.
The C20 asset is a portfolio of the top 20 cryptocurrencies which are predefined and cannot be changed by each individual investor. They have also a set strategy for when the portfolio allocations will be changed, how rebalancing is executed, and when assets are added or removed from the index.
It is important to reiterate that C20 is a tokenized crypto index fund. That means there is a single Ethereum based ERC-20 token called C20. By buying that token, you are subscribing to the whole index. You cannot exclude any assets which they include in the fund or adjust the strategy they have set for this asset. It is completely outside of your control.
Crypto20 comes with the following distinct features:
In case of a fork, they add the new tokens and perform rebalancing to follow the market. The C20 tokens are available on major exchanges, and they are actively seeking listings on additional exchanges to improve liquidity.
They also have a built-in liquidation function in the smart contract, which enables investors to withdraw their funds in ETH based on their share of underlying assets of the index fund.
Crypto20 has a very promising founding and fund management team who are looking after the sophisticated algorithm powering the Crypto20 index fund. Usability and ease of use are one of the best things about Crypto20. By just buying a single token, you can access a fund which tracks the top 20 crypto assets.
Learn more about C20 here.
Shrimpy is the most powerful and versatile tool when it comes to market indexing, automated trading and portfolio rebalancing. With Shrimpy, you can create your own index fund based on a variety of different parameters like weighting, minimum and maximum asset allocation, asset buffer zone, and much more.
Once you create a custom portfolio index, you can connect Shrimpy with the exchange of your choice via API keys, and set a rebalance frequency. Shrimpy will handle the rest and perform automated trades based on the rebalancing period. With Shrimpy, users can create and configure their custom portfolios, so they are not confined to predefined indexes like many of the other solutions discussed in this article.
These automated trading, indexing and rebalancing features are included in the free version of Shrimpy. However, with just a small free of $8.99 a month, investors can get advanced features which include:
Unlike others, Shrimpy is a complete cryptocurrency portfolio automation platform with automated portfolio management, rebalancing, market indexing, and strategy backtesting. With Shrimpy, you can automate your trades directly from an exchange via trading bots, become a part of the passionate crypto community, and manage your portfolio with a powerful ‘universal exchange interface’. Shrimpy is undoubtedly one of the best tools available in the market today!
Sign up for your free Shrimpy account here.
Read: Shrimpy review
CryptoIndex (CIX100) is another cryptocurrency index fund which tracks the top 100 cryptocurrencies chosen by the companies “Zorax” technology. This CIX100 index is also available on Reuters, TradingView, and Bloomberg financial terminals. These financial services are already used by half a million traditional investors worldwide, bringing crypto index funds that much closer to mass adoption.
The AI algorithm used by CryptoIndex is claimed to use 200+ factors for a refined ranking and selection of the coins. The CIX100 automatically rebalances itself every month and has a built-in feature for detecting those coins that have an artificially inflated price. The CIX100 also includes ‘Sectoral Indexes’, covering a variety of different industries like advertising, supply chain, and storage.
Aside from providing different AI-powered indexes, investors can also choose to make their own portfolio based on an index, which is automatically rebalanced every month. While their backtests of this strategy have suggested they highly outperformed the market, it is important to remain skeptical of their bold claims without concrete proof.
CryptoIndex also uses an Ethereum based ERC-20 token called ‘CIX100’ which represents the actual portfolio assets under the CIX100 index fund. Unlike Crypto20, CryptoIndex is aimed towards seasoned investors and traders with a full-fledged trading platform and a suite of different features mainly for detailed analytics.
Learn more here.
Ember Fund is another cryptocurrency index fund, widely known for its intuitive design. The best thing about Ember Fund is that it’s completely non-custodial, which means the investors would control all their funds in a wallet and won’t be sharing their keys with anyone.
Ember Fund has very low minimums and starts from only a mere $100 investment. One of the drawbacks of Ember Fund is that it doesn’t let users make their own index or a portfolio but instead, the users can choose pre-defined portfolios made by the Ember Fund team. Any portfolio can be purchased through Bitcoin only, and you can hold up to three different portfolios at any given time.
Once you purchase a portfolio using BTC, Ember Fund handles the rest. It takes care of things like rebalancing and automated trade via different exchanges. You can track the progress of your portfolio using the Ember mobile app. Ember Fund charges a 1.5% commission on the final withdrawal. Ember Fund is a new entrant in the market and although they have a small team, they are doing their best to improve the product and iterate on their mission.
Learn more about Ember Fund here.
Bitwise is one of the leading providers of crypto index funds. Pioneered in the crypto asset management space, Bitwise created one of the world’s first cryptocurrency index funds called ‘Bitwise 10 Private Index Fund’. With a well-diversified exposure, this fund tracks the 10 largest cryptocurrencies weighted by 5-year diluted market capitalization, and the rebalancing of the fund happens every month.
Unlike other crypto index funds that we discussed here, Bitwise is targeted towards seasoned investors and traders because the minimum investment required is $25,000. Another notable thing about Bitwise index fund is that they only on-board U.S.-based accredited investors. This means that people outside the U.S. don’t have an opportunity to invest.
Bitwise index fund has a 2.5% expense ratio which includes management fees, customary fees, and fund administrator/auditor expenses. It also charges a 3% early withdrawal fee if you go for the redemptions within the first 12 months, after which there are no fees on withdrawal.
Bitwise has a great focus on security and privacy. All of the coins are securely stored in air-gapped cold storage with multi-sig technology. To facilitate the investors, they can also do automated tax preparation where every investor gets a Schedule K-1 so that the complexities of the filing can be reduced. They also have a solid team with a range of institutional investors who have diverse backgrounds.
Learn more about Bitwise here.
As the cryptocurrency space is moving forward with rapid growth, we are seeing a lot of people jumping in to benefit from this growing ecosystem. The tools that we discussed above remove the barrier to entry and make it easy for the investors and traders from the traditional finance space to come join the crypto ecosystem.
With the evolution of Crypto index funds, the investors have now more options and strategy for making an investment in cryptocurrency. Especially users who are risk-averse might find more value in these cryptocurrency index funds.
If you have any suggestions, we would love to hear them! Drop a comment below and let us know which tool you think is the best.
Note: This resource is contributed by Michael McCarty, who is the CEO of Shrimpy. We do accept occasional submissions from notable and vetted experts.
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