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There are many people ("traditional" hedge fund managers) outside of the crypto world that want "exposure" without having to figure out which ones to pick. Thi
by iMuzz 9y ago
There are many people ("traditional" hedge fund managers) outside of the crypto world that want "exposure" without having to figure out which ones to pick.
This seems like a perfect product for them.
But from what I understand.. If $100 in invested into the index fund, $67 of bitcoin is bought, $27 of Ethereum, $7 of Bitcoin Cash, and $4 of Litecoin.
Bitcoin - 62%
Ethereum - 27%
Bitcoin Cash - 7%
Litecoin - 4%
Doesn't that make it so that the market favors incumbents?
- evrydayhustling 9y agoYes, by design! The most traditional way of deciding index weights is by market capitalization: if the world has thus far allocated more to Bitcoin than Ethereum, the index will too. Besides concurring with past "wisdom", this method minimizes management overhead. If Ethereum doubles in price tomorrow, so that by market capitalization it should have similar weight to Bitcoin, the index will already be "in position" because the value of it's eth holdings will have doubled alongside.
- sleepychu 9y agoI hadn't considered this, why do you ever need to rebalance then?
- evrydayhustling 9y agoPrice is one of two inputs driving market capitalization - the other being available supply. Since many cryptocurrencies continuously issue new supply, relative supply can change over time. The Coinbase Index rebalances once a year to track this change. The other cause of rebalance will be if they add members to the index, which would also upset all the ratios.