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Is there interest in a cryptocurrency index fund? The idea is you could just buy an index fund composed of, say, 50% BTC, 20% ETH, 15% LTC and 15% ZEC. I'm fair

by dvdhsu 9y ago

Is there interest in a cryptocurrency index fund? The idea is you could just buy an index fund composed of, say, 50% BTC, 20% ETH, 15% LTC and 15% ZEC. I'm fairly certain that one of these cryptocurrencies will 10 or 100x in value over the next 5 years, but buying each one individually is just such a pain. Would you invest? In reality, we'd probably buy the top 10 coins weighted according to some measure, and rebalance once a week. We would send out investor updates and let you know what the weights are, along with performance over the past week. We're YC and our previous idea didn't work out, and this is something we're considering pivoting to. If we get enough interest we'll start one!

hasch 9y ago
Someone could always go to https://coinmarketcap.com/ https://coinmarketcap.com/ and (sorted by market cap) buy the top N weighted by their current market cap relative to each other. I would say there is no real need for an index at all.
- rubber_duck 9y ago
  It's a PITA to buy/sell crypto concurrency, and the difference between exchange price is huge based on seller - having a fund that would do these things efficiently at scale would be useful.
RoboTeddy 9y ago
If I believed that the people behind the fund were capable of separating nonsense projects from real ones by reading their whitepapers, then absolutely yes!
pferdone 9y ago
There already is such a thing with Iconomi. https://medium.com/iconominet/iconomi-cryptocurrencies-index-icnx-21-december-2016-rebalancing-transformation-into-iconomi-8e31e48493ab https://medium.com/iconominet/iconomi-cryptocurrencies-index...
ra 9y ago
I have a few Eth and Btc, but was thinking today how it would make more sense to hold a portfolio of say the top 10 coins weighted by market cap, and rebalance every month based on https://coinmarketcap.com/ https://coinmarketcap.com/
RexetBlell 9y ago
I would invest in the index fund. Maybe it would be better if it was managed this early on where the assets the fund invests in are hand picked and rebalanced every month. Also I would suggest allocating more than 20% to ETH.
spullara 9y ago
These funds exist but it isn't as easy to buy into as an index fund if you want the analysis behind it.
bbcbasic 9y ago
Buying 4 isn't too hard.
drampelt 9y ago
Haven't tried it but Coincube seems to do this already: https://beta.coincube.io/indexes https://beta.coincube.io/indexes
Svekax 9y ago
This is a bad idea. When you're buying a cryptocurrency, you're purchasing trust. Leaving your cryptocurrency with a third party undermines this. Any business idea based on people leaving cryptocurrency with a third party is doomed. Instead, why not tackle the reasons why buying those cryptocurrencies are difficult?
- Taek 9y ago
  If you are buying to speculate perhaps your concern is not the features of the currency but rather the profit potential. You might be perfectly content trusting a third party.
  - Svekax 9y ago
    This could not be further from the truth. If anybody else has the private keys to your coins, you don't own the coins. People have been burned by a countless number brokers. They will not leave their coins with a company such as this. Only the most unsophisticated investors leave their coins with brokers. Anybody knowledgeable enough to invest in multiple cryptocurrencies is smart enough to know they need complete control over the primary keys. Otherwise, your investment could vanish at any moment.
    - jpatokal 9y ago
      Does your argument still apply if you change "coins" to "cash" and "brokers" to "banks"? I leave my fiat money in banks because I judge that the risk of the bank disappearing and taking my money with it is lower than the risk of my house getting burgled, catching fire, etc. Likewise, it's entirely reasonable to think that a competent Bitcoin broker is more secure and safe than my half-assed attempt to keep my own keys and risk losing access to my coins through my own incompetence.
      - nkuttler 9y ago
        > competent Bitcoin broker That's the entire problem. Bitcoin has existed for eight years, and for a long time virtually nobody knew about it. Not a single bitcoin broker could demonstrate competency yet. It's better to stay out of this market if you think you can trust them.
axlprose 9y ago
> fund composed of, say, 50% BTC, 20% ETH, 15% LTC and 15% ZEC > ... buy the top 10 coins weighted according to some measure, and rebalance once a week As a relatively sophisticated investor myself, I'm not against the idea, but whether or not I'd invest in it would depend heavily on the implementation. And as of now with that example portfolio, I definitely wouldn't invest in it. Having a large btc bias when all the major cryptos are already highly correlated with btc seems redundant, and rebalancing once a week seems like overkill. Also, marketcap is a poor indicator of returns, in case you're considering using it for weighting.
- saurik 9y ago
  I assumed those percentages were just totally made up to demonstrate the idea, not a concrete proposal.
  - axlprose 9y ago
    No yeah, I get that. My critique was meant as an example of why implementation matters so much in a product like this. Because without even a rough estimate of how the index would be composed, it's hard to give any kind of feedback really. EDIT: also, the btc bias comment was meant to generalize beyond just that example portfolio, because as a potential 'customer', I felt it should be made clear that btc is what I hold when I want liquidity, therefore it seems redundant to allocate any significant portion of my investment portfolio into an asset that I'm already going to be maintaining for everyday use and casual savings anyway.
ganwar 9y ago
Iconomi does this already and much more.
patio11 9y ago
You probably want to read on the difficulties facing the Winklevoss' proposed ETF for Bitcoin. The MVP of your proposed idea is easy; the legal version is hard. If you do the MVP and don't put in an effort to get legal the happy case outcome is the SEC sends you a very annoyed letter and you shut down; there are a number of less-happy outcomes. (If you're going to spend a few years getting intimately familiar with how to operate mutual funds writing software to do that might be more interesting than anything in crypto, since it doesn't require any speculation to envision a future where mutual funds run the world and are run on Excel spreadsheets and bubble gum.)
- rgbrgb 9y ago
  It would be cool to do it in such a way that you ship the crypto "fund" as a binary that users run on their own server, kind of like a smart wallet. The program would make automatic trades to rebalance some BTC you initially deposit. You could "withdraw" BTC with a sale (implementation detail) whenever you wanted. I wouldn't think there would be legal requirements there.
  - Mtinie 9y ago
    >>> It would be cool to do it in such a way that you ship the crypto "fund" as a binary that users run on their own server, kind of like a smart wallet. The program would make automatic trades to rebalance some BTC you initially deposit. You could "withdraw" BTC with a sale (implementation detail) whenever you wanted. I like the concept, a lot. In fact, I like it so much so that I'm going to toss out a bunch of unsolicited advice for you -- or whoever starts down the path to build a tool like this -- to consider. My immediate concern would be ensuring the fund was large enough to support the counter party risk that everyone would take on as their tokens cycled between BTC and whatever else was in the index. If it's not large enough and you have a significant enough event that triggers a higher-than-normal BTC pull out you may end up in a situation where some number of the users are stuck with tokens that they can't do anything with. The second concern I have is how you'd manage to avoid a situation of a eventual "death by a thousand cuts", wrt all of the token-specific fees that are automatically deducted for each transaction. Every trade the tool makes -- if conducted on-blockchain versus through a centralized service/layer -- will gradually erode the user's capital. If you tried to aggregate the trades off-blockchain to avoid the individual transaction fees for every trade you introduce a whole new set of risks and challenges. Finally, if you're doing everything on-blockchain, you need to consider that the "settlement time" for each transaction won't be consistent. The different tokens will take different amounts of time, and even within the same token there's going to be wild variability. For example, within the last two months I've had different BTC transactions take anywhere from 1 hour to 2 days to reach six network confirmations. I always include a (nominally) higher than the minimum required transaction fee to ensure I'm not actively dropped by miners, and it's as much a function of luck as it is lots of other variables that would be outside of your direct control. You could pay a larger fee per transaction in the hopes of getting the miners to prioritize your trades, but that leads you back to my early point about "death by a thousand cuts". >> I wouldn't think there would be legal requirements there. For you, the developer, maybe not if you give it away. For the person running the software there are almost certainly going to be tax implications at a bare minimum (and all sorts of other local regulatory and legal "land mines") that they would need to consider. If you'd like to charge money for the binary in the form of a perpetual license fee, you may be ok. I expect that you would eventually run in to regulatory issues if you set it up to charge a trading fee or subscription fee (ostensibly for "financial services" such as assisting with the matching of traders). It all depends on how quickly your tool reached a point where it was successful enough to draw the attention of some regulator, somewhere. --- IANAL / IANAA, but I spent a number of years working full-time in the cryptocurrency space, so I've seen a bunch of great ideas up-ended by even the perceived threat of legal action. I enjoy discussing these topics, so if you or anyone else would like to chat about it off HN, my contact info is in my profile.
jesusthatsgreat 9y ago
I think it would make more sense to create your own token and peg it to the combined market cap of the top 100 cryptos, updated hourly. i.e. let's say combined market cap is $40b today. Create a token called 'Coin100' and a crowdsale issuing 1 billion tokens.
godmodus 9y ago
How much are we talking in in terms of the minimum buy in?
developer2 9y ago
The way people are treating cryptocurrency exchanges makes absolutely no sense to me. Most people are buying into it because they are absolutely certain they will manage to cash out once the currency hits an extreme "all time high". When such a peak occurs whereby the top 1% - as determined by number of coins owned - cashes out, everyone else who jumped on the bandwagon thinking they would also cash out is going to be left with exactly nothing. Let's be absolutely clear: your coins are only worth what someone is willing to pay. And when the one and only true "run on the bank" of one of these currencies happens, it will happen within the span of less than an hour. All these people who are buying to eventually cash out are going to blink and wonder what the hell happened. Take BTC as the example right now. All over the place, people are showing regret for not buying in a few years ago. No average BTC "shareholder" is going to be able to cash out for more than mere pennies. The majority of coins are owned by big players, and you are effectively dumping your cash into their pockets by buying into it. BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh.
- bhaak 9y ago
  > Let's be absolutely clear: your coins are only worth what someone is willing to pay. And when the one and only true "run on the bank" of one of these currencies happens, it will happen within the span of less than an hour. All these people who are buying to eventually cash out are going to blink and wonder what the hell happened. That's not so different than what can happen in real life with currencies, isn't it? So at least the goal of treating Bitcoin like a currency has been met. Those that got in early enough or have already cashed out usually keep their mouth shut. For those who regard it as a speculative asset and only want to get rich and now lament that they missed the early adopter phase, yeah, such people exist. I know several of them personally. It's always interesting to argue with them and yes, it would be better if there were regulations to protect them. Greed is a bad investment strategy and it's only profit if you are willing to take profit. But people that push out the profit taking will always complain about not getting enough and most of them will get burned. > BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh. I see, you are not a true Buttcoin believer. Let me paraphrase an old meme: If Bitcoin succeeds, you won't have to cash out. Jokes aside, Satoshi never made a promise to not cash out. It's likely, he/she/them are dead or lost the keys to their private wallet. Even in the unlikely case of Satoshi still being alive and having access to the coins, the minute this coins move, the price will plummet. And you can be sure that many people are watching these coins, a move will be noticed. Immediately.
joeblau 9y ago
Lawnmower Blockchain Index (LBI): https://lawnmower.io/lawnmower-blockchain-index https://lawnmower.io/lawnmower-blockchain-index
eiliant 9y ago
iconomi already doing this
wslh 9y ago
> We're YC and our previous idea didn't work out... What do you mean with "We're YC" ?
- sah2ed 9y ago
  Perhaps they meant to write "We're [in] YC [currently]".
pmorici 9y ago
Why do you think buying each one individually is a pain?
sushid 9y ago
There's quite a few players already doing this. Iconomi has already "solved" the problem of paying out dividends by "burning" their own coins,.

by dvdhsu 9y ago

hasch 9y ago

Someone could always go to https://coinmarketcap.com/ https://coinmarketcap.com/ and (sorted by market cap) buy the top N weighted by their current market cap relative to each other. I would say there is no real need for an index at all.

rubber_duck 9y ago
It's a PITA to buy/sell crypto concurrency, and the difference between exchange price is huge based on seller - having a fund that would do these things efficiently at scale would be useful.

RoboTeddy 9y ago

If I believed that the people behind the fund were capable of separating nonsense projects from real ones by reading their whitepapers, then absolutely yes!

pferdone 9y ago

There already is such a thing with Iconomi. https://medium.com/iconominet/iconomi-cryptocurrencies-index-icnx-21-december-2016-rebalancing-transformation-into-iconomi-8e31e48493ab https://medium.com/iconominet/iconomi-cryptocurrencies-index...

ra 9y ago

I have a few Eth and Btc, but was thinking today how it would make more sense to hold a portfolio of say the top 10 coins weighted by market cap, and rebalance every month based on https://coinmarketcap.com/ https://coinmarketcap.com/

RexetBlell 9y ago

I would invest in the index fund. Maybe it would be better if it was managed this early on where the assets the fund invests in are hand picked and rebalanced every month. Also I would suggest allocating more than 20% to ETH.

spullara 9y ago

These funds exist but it isn't as easy to buy into as an index fund if you want the analysis behind it.

bbcbasic 9y ago

Buying 4 isn't too hard.

drampelt 9y ago

Haven't tried it but Coincube seems to do this already: https://beta.coincube.io/indexes https://beta.coincube.io/indexes

Svekax 9y ago

This is a bad idea. When you're buying a cryptocurrency, you're purchasing trust. Leaving your cryptocurrency with a third party undermines this. Any business idea based on people leaving cryptocurrency with a third party is doomed. Instead, why not tackle the reasons why buying those cryptocurrencies are difficult?

Taek 9y ago
If you are buying to speculate perhaps your concern is not the features of the currency but rather the profit potential. You might be perfectly content trusting a third party.
- Svekax 9y ago
  This could not be further from the truth. If anybody else has the private keys to your coins, you don't own the coins. People have been burned by a countless number brokers. They will not leave their coins with a company such as this. Only the most unsophisticated investors leave their coins with brokers. Anybody knowledgeable enough to invest in multiple cryptocurrencies is smart enough to know they need complete control over the primary keys. Otherwise, your investment could vanish at any moment.
  - jpatokal 9y ago
    Does your argument still apply if you change "coins" to "cash" and "brokers" to "banks"? I leave my fiat money in banks because I judge that the risk of the bank disappearing and taking my money with it is lower than the risk of my house getting burgled, catching fire, etc. Likewise, it's entirely reasonable to think that a competent Bitcoin broker is more secure and safe than my half-assed attempt to keep my own keys and risk losing access to my coins through my own incompetence.
    - nkuttler 9y ago
      > competent Bitcoin broker That's the entire problem. Bitcoin has existed for eight years, and for a long time virtually nobody knew about it. Not a single bitcoin broker could demonstrate competency yet. It's better to stay out of this market if you think you can trust them.

axlprose 9y ago

> fund composed of, say, 50% BTC, 20% ETH, 15% LTC and 15% ZEC > ... buy the top 10 coins weighted according to some measure, and rebalance once a week As a relatively sophisticated investor myself, I'm not against the idea, but whether or not I'd invest in it would depend heavily on the implementation. And as of now with that example portfolio, I definitely wouldn't invest in it. Having a large btc bias when all the major cryptos are already highly correlated with btc seems redundant, and rebalancing once a week seems like overkill. Also, marketcap is a poor indicator of returns, in case you're considering using it for weighting.

saurik 9y ago
I assumed those percentages were just totally made up to demonstrate the idea, not a concrete proposal.
- axlprose 9y ago
  No yeah, I get that. My critique was meant as an example of why implementation matters so much in a product like this. Because without even a rough estimate of how the index would be composed, it's hard to give any kind of feedback really. EDIT: also, the btc bias comment was meant to generalize beyond just that example portfolio, because as a potential 'customer', I felt it should be made clear that btc is what I hold when I want liquidity, therefore it seems redundant to allocate any significant portion of my investment portfolio into an asset that I'm already going to be maintaining for everyday use and casual savings anyway.

ganwar 9y ago

Iconomi does this already and much more.

patio11 9y ago

You probably want to read on the difficulties facing the Winklevoss' proposed ETF for Bitcoin. The MVP of your proposed idea is easy; the legal version is hard. If you do the MVP and don't put in an effort to get legal the happy case outcome is the SEC sends you a very annoyed letter and you shut down; there are a number of less-happy outcomes. (If you're going to spend a few years getting intimately familiar with how to operate mutual funds writing software to do that might be more interesting than anything in crypto, since it doesn't require any speculation to envision a future where mutual funds run the world and are run on Excel spreadsheets and bubble gum.)

rgbrgb 9y ago
It would be cool to do it in such a way that you ship the crypto "fund" as a binary that users run on their own server, kind of like a smart wallet. The program would make automatic trades to rebalance some BTC you initially deposit. You could "withdraw" BTC with a sale (implementation detail) whenever you wanted. I wouldn't think there would be legal requirements there.
- Mtinie 9y ago
  >>> It would be cool to do it in such a way that you ship the crypto "fund" as a binary that users run on their own server, kind of like a smart wallet. The program would make automatic trades to rebalance some BTC you initially deposit. You could "withdraw" BTC with a sale (implementation detail) whenever you wanted. I like the concept, a lot. In fact, I like it so much so that I'm going to toss out a bunch of unsolicited advice for you -- or whoever starts down the path to build a tool like this -- to consider. My immediate concern would be ensuring the fund was large enough to support the counter party risk that everyone would take on as their tokens cycled between BTC and whatever else was in the index. If it's not large enough and you have a significant enough event that triggers a higher-than-normal BTC pull out you may end up in a situation where some number of the users are stuck with tokens that they can't do anything with. The second concern I have is how you'd manage to avoid a situation of a eventual "death by a thousand cuts", wrt all of the token-specific fees that are automatically deducted for each transaction. Every trade the tool makes -- if conducted on-blockchain versus through a centralized service/layer -- will gradually erode the user's capital. If you tried to aggregate the trades off-blockchain to avoid the individual transaction fees for every trade you introduce a whole new set of risks and challenges. Finally, if you're doing everything on-blockchain, you need to consider that the "settlement time" for each transaction won't be consistent. The different tokens will take different amounts of time, and even within the same token there's going to be wild variability. For example, within the last two months I've had different BTC transactions take anywhere from 1 hour to 2 days to reach six network confirmations. I always include a (nominally) higher than the minimum required transaction fee to ensure I'm not actively dropped by miners, and it's as much a function of luck as it is lots of other variables that would be outside of your direct control. You could pay a larger fee per transaction in the hopes of getting the miners to prioritize your trades, but that leads you back to my early point about "death by a thousand cuts". >> I wouldn't think there would be legal requirements there. For you, the developer, maybe not if you give it away. For the person running the software there are almost certainly going to be tax implications at a bare minimum (and all sorts of other local regulatory and legal "land mines") that they would need to consider. If you'd like to charge money for the binary in the form of a perpetual license fee, you may be ok. I expect that you would eventually run in to regulatory issues if you set it up to charge a trading fee or subscription fee (ostensibly for "financial services" such as assisting with the matching of traders). It all depends on how quickly your tool reached a point where it was successful enough to draw the attention of some regulator, somewhere. --- IANAL / IANAA, but I spent a number of years working full-time in the cryptocurrency space, so I've seen a bunch of great ideas up-ended by even the perceived threat of legal action. I enjoy discussing these topics, so if you or anyone else would like to chat about it off HN, my contact info is in my profile.

jesusthatsgreat 9y ago

I think it would make more sense to create your own token and peg it to the combined market cap of the top 100 cryptos, updated hourly. i.e. let's say combined market cap is $40b today. Create a token called 'Coin100' and a crowdsale issuing 1 billion tokens.

godmodus 9y ago

How much are we talking in in terms of the minimum buy in?

developer2 9y ago

The way people are treating cryptocurrency exchanges makes absolutely no sense to me. Most people are buying into it because they are absolutely certain they will manage to cash out once the currency hits an extreme "all time high". When such a peak occurs whereby the top 1% - as determined by number of coins owned - cashes out, everyone else who jumped on the bandwagon thinking they would also cash out is going to be left with exactly nothing. Let's be absolutely clear: your coins are only worth what someone is willing to pay. And when the one and only true "run on the bank" of one of these currencies happens, it will happen within the span of less than an hour. All these people who are buying to eventually cash out are going to blink and wonder what the hell happened. Take BTC as the example right now. All over the place, people are showing regret for not buying in a few years ago. No average BTC "shareholder" is going to be able to cash out for more than mere pennies. The majority of coins are owned by big players, and you are effectively dumping your cash into their pockets by buying into it. BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh.

bhaak 9y ago
> Let's be absolutely clear: your coins are only worth what someone is willing to pay. And when the one and only true "run on the bank" of one of these currencies happens, it will happen within the span of less than an hour. All these people who are buying to eventually cash out are going to blink and wonder what the hell happened. That's not so different than what can happen in real life with currencies, isn't it? So at least the goal of treating Bitcoin like a currency has been met. Those that got in early enough or have already cashed out usually keep their mouth shut. For those who regard it as a speculative asset and only want to get rich and now lament that they missed the early adopter phase, yeah, such people exist. I know several of them personally. It's always interesting to argue with them and yes, it would be better if there were regulations to protect them. Greed is a bad investment strategy and it's only profit if you are willing to take profit. But people that push out the profit taking will always complain about not getting enough and most of them will get burned. > BTC's Nakamoto "promises" they will never cash out their enormous share. How nice of them. The community can monitor Nakamoto's wallets all they want. I can't wait for him/her to cash out their BTC, and screw over the entire system. I'm just sitting here ready to laugh. I see, you are not a true Buttcoin believer. Let me paraphrase an old meme: If Bitcoin succeeds, you won't have to cash out. Jokes aside, Satoshi never made a promise to not cash out. It's likely, he/she/them are dead or lost the keys to their private wallet. Even in the unlikely case of Satoshi still being alive and having access to the coins, the minute this coins move, the price will plummet. And you can be sure that many people are watching these coins, a move will be noticed. Immediately.

joeblau 9y ago

Lawnmower Blockchain Index (LBI): https://lawnmower.io/lawnmower-blockchain-index https://lawnmower.io/lawnmower-blockchain-index

eiliant 9y ago

iconomi already doing this

wslh 9y ago

> We're YC and our previous idea didn't work out... What do you mean with "We're YC" ?

sah2ed 9y ago
Perhaps they meant to write "We're [in] YC [currently]".

pmorici 9y ago

Why do you think buying each one individually is a pain?

sushid 9y ago

There's quite a few players already doing this. Iconomi has already "solved" the problem of paying out dividends by "burning" their own coins,.