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Cryptocurrency Index Trading Has Arrived

Cryptocurrency Index Trading Has Arrived

Are you among the many potential investors in cryptocurrency who have been scared away by the risk of backing a single coin? It’s understandable that people prefer to spread out their investments. One strategy that sprang up in response to this situation is purchasing a stake in multiple cryptocurrencies, perhaps as many as a dozen, in order to gain exposure to a wider range of the segment. Now, S&P Dow Jones Indices has set out to resolve this common investing dilemma for crypto enthusiasts, announcing recently that the financial entity will in 2021 launch a 550-coin wide index for prospective cryptocurrency traders. 

The company’s data subscribers will be able to pick and choose among the 550 coins and offer their clients indices with various mixes of cryptos based on capitalization, age, and other characteristics. For financial instruments and assets, it’s a huge rite of passage to be included on an index. Why is the S&P Dow Jones offering such a big deal for institutions and individuals? For one thing, it will bring billions of fresh capital into the crypto arena, helping some of the smaller c-currencies survive as viable investment tools. Additionally, those who are risk-averse will soon have the chance to gain exposure to a market that previously scared them off with its higher-than-normal volatility and infamously speculative nature.

Why is popular stock market indices trading such a positive thing for people of all income levels who want to profit from the rapid growth of cryptocurrency as an asset class? Those who put their money into any basket of securities gain several benefits that aren’t available to folks who buy individual stocks or cryptos. Keep in mind that brokers and dealers who subscribe to these new products from S&P Dow Jones build any type of index fund they want, thus offering a virtually endless combination of choices to the public. If you’re thinking about taking advantage of one of the new funds, keep the following facts in mind.

Futures are Already on the Menu

The cyber currencies already have their own derivative markets based out of the Chicago Mercantile Exchange in the form of futures contracts. These time-limited instruments allow institutions and individuals speculate on price changes but more importantly operate as an ideal form of hedging.

Hedge Funds

Futures contracts aside, some of the world’s largest hedge funds are taking advantage of the growth of cryptocurrency by investing up to 10 percent of their total assets into the sector. Now that Bitcoin (BTC) and a handful of similar offerings are accepted forms of payment all over the world, the smart money on Wall Street and elsewhere wants in on the opportunities.

Another Form of Gold?

When times get tough, people put their money into safe haven instruments like gold and other types of hard assets. Apparently, cryptocurrency is earning a reputation as another viable way of protecting wealth when either the stock market takes a beating or political turmoil is on the horizon. And even in good times, many people view gold, silver, and cryptos as a way of diversifying portfolios and rounding out their holdings.

Potential Returns

The new indices offer more than a chance for hedging, diversifying, and balancing one’s accounts. They offer ordinary working adults the opportunity to take a shot at something as tantalizing as Bitcoin’s projected value, which is anyone’s guess. Since BTC recently came within touching distance of $20,000, representing a 170 percent growth rate for the year, vast sums have begun flowing into accounts that allow people to purchase the most famous name in cryptocurrency.

Baskets Offer Multiple Benefits

It’s not just the concept of being able to diversify among several dozen or several hundred coins, but the very idea of a basket of holdings, aka an indexed fund, offers unique advantages for people who like the idea of profit but don’t want to take on too much risk potential. Reduced risk is great, but so is the chance to gain exposure to an entire universe of crypto-coins, all of which have their own pros and cons. When someone holds shares in a balanced fund, they need not worry about a single cyber-currency going bust. The situation is much the same as buying the Dow via a balanced fund. One or more companies might go bankrupt or fall on exceedingly hard times, but because there are so many components to the list of holdings, downside damage is limited. Another plus for most indexed funds is that traders can go long or short, based on the particular fund and how it is set up to track the market.

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