Day trading cryptocurrency isn’t for everyone. For that reason, as well as to reach a new group of investors, many exchanges are launching their own crypto index funds. Managing multiple cryptocurrencies is time-consuming, with so many options available and so much research necessary.
Index funds are based on the overall performance of a group of assets, rather than one often volatile individual cryptocurrency. While it’s true that the crypto market as a whole remains volatile, index funds help spread this risk and remove some of the need to manage trading. While most have been restricted to US accredited investors with a large amount of capital available, new crypto indexes are coming. Here’s a look at what’s out there, who can invest, and what hurdles crypto index funds face moving forward.
While index funds are a useful tool, regulatory approval presents the biggest barrier to expansion and access. Other options like crypto ETFs have struggled to get regulatory approval from the SEC. Among US citizens, requiring that investors be accredited presents a huge hurdle for the majority of investors.
One of the SEC’s main concerns about such funds is price manipulation. The total market cap of all cryptocurrencies is still orders of magnitude less than the estimated market cap of the S&P 500. This means that it is still relatively easy—at least compared to traditional stocks—for large investors to manipulate price movements, especially with smaller market cap cryptocurrencies.
Another big concern is a lack of security. While the decentralized nature of cryptocurrency makes it theoretically highly secure, the SEC is still wary about potentially unforeseen issues with the technology behind it. This may be more a lack of understanding than anything else.
The last notable issue with current cryptocurrency index funds relates to prospective investors. Management fees for crypto indexes tend to be in the 2-3% range, in contrast to traditional stock market fees which are often less than a percent.
As index funds for cryptocurrencies gain more regulatory approval and official recognition, they are sure to inspire more confidence and trust from both investors and the general public. This will also make these funds available to smaller investors on bigger platforms, opening the crypto markets to more and more people worldwide.
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