The case for indexing in crypto

Those who have looked beyond the obvious and diversified within this space have been handsomely rewarded.
Revix’s Top 10 Bundle provides equally weighted access to the top 10 largest cryptocurrencies and has risen over 150% since the start of 2020. Image: Chris Ratcliffe, Bloomberg

Bitcoin is the most well-known cryptocurrency and is often the first port of call for anyone looking to invest in the crypto space, however, as the broader crypto ecosystem has evolved investors have been handsomely rewarded for investing in a diversified crypto portfolio.

The recent crypto market performance has been nothing short of remarkable. Bitcoin is up over 60% in 2020 on a year-to-date basis. This price boom pushes its returns ahead of traditional assets like gold (up ~27%) and the S&P 500 (up ~4%).

As impressive as Bitcoin’s returns have been it still lags far behind the returns of the broader crypto market. Investment platform Revix’s Top 10 Bundle, which provides equally weighted access to the top 10 largest cryptocurrencies which covers over 80% of the total crypto market, has risen over 150% since the start of 2020. This has been thanks to major gains in cryptocurrencies like Chainlink (up ~850%), Cardano (up ~290%), and Ethereum’s ether (up ~230%).

Source: Revix

The performance of the alternative coins – or ‘altcoins’ which exclude Bitcoin – has driven the outperformance of Revix’s ready-made crypto bundles and is a reminder of why diversified indexing is the best approach for most investors when it comes to crypto investing.

In addition to the Top 10 Bundle, Revix offers two theme-based crypto bundles:

  • The Payment Bundle, which provides exposure to the top five payment-focused cryptocurrencies looking to make digital payments cheaper, faster and more global; and
  • The Smart Contract Bundle, which consists of cryptocurrencies such as Ether that enable developers to build applications on top of their blockchains, much like how developers build mobile apps on top of the Apple mobile iOS operating system.

On a year to date basis, Revix’s Top 10 Bundle is outperforming Bitcoin by over 90%, with its Smart Contract and Payment bundles also outperforming Bitcoin – by 89% and 49% respectively.

Source: Revix

Sean Sanders, founder of Revix, which is backed by JSE-listed Sabvest, explains: “Crypto is such a new and dynamic asset class, it’s hard to predict which blockchains and cryptocurrencies will be the Amazon-like success stories of tomorrow.

“If you try to gamble, like most newbie traders do, and pick individual coins, you could end up missing out on the growth of the entire crypto space.”

For investors looking to gain crypto exposure, Revix has brought low-cost diversified crypto-index investing to everyday investors through its ready-made crypto bundles, making crypto investing as easy as buying the JSE Top 40.

Revix is accessible as investors can get started with an investment of as little as R500, and what’s great is that they can sell out and withdraw their funds at any time after purchase. There are no lock-up periods as there are with other investment funds.

Revix charges no monthly subscription fees, but rather a simple 1% transaction fee for both buys and sells and a 0.17% per month rebalancing fee (which amounts to 2.04% a year) on the total bundle value held.

There’s a lot more to crypto than just Bitcoin

Since it was first developed, an ecosystem of developers, traders, speculators and entrepreneurs have flooded into the crypto space. Sometimes, the new cryptocurrencies they create are intended as competitors to Bitcoin; sometimes, they’re using a blockchain to do something completely different.

As an analogy, think of apps like Twitter, Instagram, WhatsApp, Uber and Google Maps. While they’re all apps, and you see a mix of direct competition and indirect competition, they all sit on top of operating systems such as iOS or Android.

What does that mean for us as investors? It means there may be multiple potential success stories at different stages of their product journey. Conversely, it means there’s a possibility that a cryptocurrency that looks good today is really a MySpace soon to be overtaken by a Facebook down the road.

Picking winners is not easy

If all these coins have different use cases and performance, the question that follows is, why not just invest in the best few names. The answer is because it’s hard – maybe impossible – to predict which will be the winners in the future.

If we compare the top 10 cryptocurrencies in August 2020 to those of August 2019 we find that only six of the top 10 cryptocurrencies remain.

This means 40% of 2019’s top 10 cryptocurrencies have been replaced.

“There are likely to be many such stories in the crypto space, and it’s difficult now to predict which will succeed and which won’t,” says Sanders.

Source: Revix

If we look back further, to January 2015, Bitcoin had a market cap of only $4 billion, down from its (until then) all-time high of $13 billion – and it’s now standing at $221 billion. There were hundreds of crypto assets in the market at that point, including familiar names like Litecoin.

At that time, Ethereum was a new project, existing only as a white paper, and wouldn’t launch its cryptocurrency, named Ether (ETH), until July that year. However, when it launched it rocketed from obscurity past 100 other coins into the top 10, eventually settling as the second-largest crypto asset in terms of market capitalisation. This year, it has generated 2x Bitcoin’s returns.

What’s driven these exceptional returns is a better appreciation of what the future holds for Ethereum and other ‘smart contract’ cryptos like it.

“The point is not that Ether is the new best crypto to own. The point is that, while it’s easy to assess the present – to identify the current winners – it’s hard to predict the future,” says Sanders.

Owning a piece of the top 10 cryptos

Revix’s Top 10 Bundle aims to deliver on one promise: To make sure that customers own the 10 largest, and by default the 10 biggest, success stories in the crypto space, whatever they may be.

To accomplish that, Revix’s bundles offer a few added benefits.

First, before any cryptocurrency enters the bundle, Revix evaluates it for security, liquidity, custodial coverage, regulatory status, and other factors. This ensures it can be held in a safe, secure, and regulatorily compliant manner.

Second, Revix’s algorithms automatically rebalance and reconstitute a customer’s bundle holdings so that they are equally weighted on a monthly basis to ensure that they stay current and capture emerging assets as they enter the top 10. An equally weighted bundle ensures that holdings are as diversified as they can be and that profits are taken from the top-performing cryptocurrencies. Revix offers “buffering” rules to prevent cryptos from popping in and out of the bundle. This minimises turnover while capturing high growth assets like Chainlink, which is the top performer in the Top 10 Bundle. Chainlink has increased more than 400% since it came into the bundle in May.

Since January 2016, the Top 10 Bundle is up by more than 1 200% versus Bitcoin’s 1 000% gain.

The weightings are rebalanced monthly to ensure each asset has exactly 10% of the basket.

Lastly, Revix offers a unique price routing system enabling customers to obtain the best prices available at the moment of purchase or sale. “We aren’t a crypto exchange, and this means we have the ability to source the best pricing and liquidity for our customers across multiple crypto exchanges at any given time,” says Sanders.

As the old adage goes, ‘Don’t look for the needle in the haystack. Just buy the haystack.’

It seems diversification in the rapidly changing world of crypto may be even more important than in other markets.

About Revix

Revix brings simplicity, trust and great customer service to investing. Its easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks.

Revix guides new clients through the sign-up process, to their first deposit and first investment. Once set up, most customers manage their own portfolio, but can access support from the Revix team at any time. 

For more information, visit Revix.

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing please take into consideration your level of experience and investment objectives, and seek independent financial advice if necessary. 

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Crypto Currencies are not regulated by the Financial Authorities or backed by any government, if something goes wrong with cryptocurrencies you got no where to turn to.

“Bitcoin was created in 2008 by an uknown person or group of people using the name Satoshi Nakamoto.” This should raise a lot of alarm bells i.e. crypto currencies have no transparency ahd are not regulated by the financial authorities they sound like complex Ponzi(Pyramid Schemes)

Yup, just like all the shareholders in Steinhoff and others;

Did they get their money back in that regulated market and just how transparent was it that they were going to lose 99% of their asset value?

When your FSCA registered “Financial Planner” loses a whack of you money in your portfolio, do you get your money back?

So tell me, in your regulated world, who do I turn to to get my money back?

No, my friend, the “Regulated Markets” is where people go to lose money and never see it again.

There is no backing of any fiat money. That’s what caused crypto currency to come into being.

The case for indexing against certain crypto using block chain

I still wont be touching crypto any time soon.

I’ve seen many people ride the hype and crow when they made money. They are very silent these days. I know that many of them lost several hundred thousand.

No thank you.

End of comments.

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