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Why was there enormous work involved? Were you rebalancing very often? Note that Coinbase's fund will be made up of only four cryptocurrencies, not 25 like your

Why was there enormous work involved? Were you rebalancing very often? Note that Coinbase's fund will be made up of only four cryptocurrencies, not 25 like yours.

slg 9y ago
Yeah, this is an index of 4 securities and is rebalanced annually. Coinbase is charging a 2% fee for what amounts to automating a max of 4 transactions a year. I get that people are excited about cryptocurrencies becoming available in more traditional investment vehicles, but this particular index fund seems almost completely unnecessary.
- froindt 9y ago
  I'm admittedly not up on rebalancing policies. With a fund of highly volatile assets, would rebalancing more frequently be necessary? I'm not thinking daily, but perhaps every month or so?
  - solarkraft 9y ago
    I believe so. The worth of your portfolio is the worth of the assets. Bitcoin dropped a ton in even a month. There are still changes of a few percent possible in less than a day, so yearly balancing sounds insanely dumb to me.
    - ericd 9y ago
      Index funds are usually market cap weighted, so day to day changes in value don't require rebalancing, since if a security suddenly doubles, its market cap does too, and it's therefore still held in the correct proportion to the other securities in the index.
  - slg 9y ago
    Yes, at the most general level highly volatile assets should be rebalanced more frequently. However, that isn't going to be a universal rule. It will depend on what is causing the volatility and whether that is more a product of the market or something specific related to the assets. Rebalancing too frequently is also a very real possibility so more is not always better. Another consideration specific to cryptocurrencies like Bitcoin is the relatively high transaction fee. You don't want to see your investments be whittled away by frequent transaction fees doing unnecessary rebalances. I haven't spent enough time researching cryptocurrencies to know how all these considerations shake out when it comes to this specific index fund, but as a pure gut instinct the annual rebalancing was less frequent than I would have expected from this type of fund.
    - proofofmoon 9y ago
      Rebalancing cryptoassets on the same exchange (without withdrawing to a wallet [1]) doesn't require on-chain transactions. The fee would be the order fill fee, which for GDAX is 0-0.25%, much less than 2% of the account balance. ([1] For the not-your-keys-not-your-coins crowd: if you don't trust Coinbase with the coins, you can't trust it with the fund either.)
  - the_gastropod 9y ago
    The point of market cap weighting is that rebalancing is mostly unnecessary. The only events that require a rebalance is when a coin is added or removed from the index.
  - nwellnhof 9y ago
    A fund weighted by market cap doesn't have to be rebalanced. With crypto assets, you only have to adjust for newly mined coins. The Bitcoin supply, for example, is currently growing at about 4% per year. But if the other currencies in the Coinbase Index are mined at a similar rate, yearly rebalancing should be accurate enough.
    - deleted 9y ago
      [deleted]
- cies 9y ago
  > Coinbase is charging a 2% fee for what amounts to automating a max of 4 transactions a year. I came up with some more they do for 2%/y: * Buy more coins when their fund expands * Secure the shit out of those private keys
  - daveguy 9y ago
    > Secure the shit out of those private keys Well I hope they are doing that already. Initial coin buy is part of those 4 / yr.
  - vkou 9y ago
    * Secure the shit out of those private keys Are they insured for 100% of the value of the coins on those private keys? If not, you are paying 2% YoY + X%, where X% is your counterparty risk - the odds that someone at Coinbase fucks up, and your money is irreversibly gone.
    - DennisP 9y ago
      That's a good question. If the answer is "yes" then maybe that's the reason for the high fee. Currently they have insurance on their hot wallet coins, which I think is about 5% of the total. The cold wallets aren't insured, but they're paper wallets held in safe deposit boxes all over the world, so it's unlikely that a large percentage would be lost.
  - evrydayhustling 9y ago
    Besides the fact that it should cost nothing like 2% of AUM / year, securing the private keys pays for itself when they claim every fork/spin-off coin that distributes based on bitcoin blockchain.
    - e12e 9y ago
      Are you saying coinage handling bcc in a sane manner is the exception, not the rule? Are there any other forks that have enough value/liquidity that they should be "given back" to the buyers?
- pazimzadeh 9y ago
  The legal text says: "This announcement [...] is not an offer to sell or a solicitation of an offer to purchase interests in any fund or investment vehicle.
- moduspol 9y ago
  But they can't necessarily make those transactions easily with a ton of money in the fund, right? I mean if the current price of BTC is $10,500, buying $10m worth of BTC will drive up the price as they're doing it. So how can you rebalance accurately if you're affecting the price of these cryptocurrencies while you do it? Or do they just do like a "best guess" and overbuy a little and then sell off to get the balance right? I guess any index fund would have this issue, though.
mlerner 9y ago
The Bitwise HOLD10 (where I work) handles a lot of the hard work around rebalancing and taxes.
mlerner 9y ago
I think rebalancing with Coinbase's selection of coins is pretty easy. When you have a more complex basket (for context, I work at Bitwise Investments, which runs the Bitwise HOLD10 Index), it is more difficult to decide what goes into the basket. For example, several coins (like Neo and Ripple) have supplies that grow and are centrally controlled, but many coins have planned inflation schedules. We know that the supply of many of the large-cap coins is going to grow over the next couple of years, and that needs to be taken into consideration when valuing them. To explain why that is important: if people buy a coin at a certain price _knowing_ that a certain amount of inflation is going to happen, that means investors think that the market cap of the coin is actually much more (think of this like Discounted Cash Flow). Restated, if people buy these coins knowing that the supply is actually going up, that means that they think that the value of the coin is actually much higher than the current market cap. If you want to learn more about indexing methodologies for cryptocurrencies, you should check out our website: https://www.bitwiseinvestments.com/index https://www.bitwiseinvestments.com/index

Why was there enormous work involved? Were you rebalancing very often? Note that Coinbase's fund will be made up of only four cryptocurrencies, not 25 like yours.

slg 9y ago

Yeah, this is an index of 4 securities and is rebalanced annually. Coinbase is charging a 2% fee for what amounts to automating a max of 4 transactions a year. I get that people are excited about cryptocurrencies becoming available in more traditional investment vehicles, but this particular index fund seems almost completely unnecessary.

froindt 9y ago
I'm admittedly not up on rebalancing policies. With a fund of highly volatile assets, would rebalancing more frequently be necessary? I'm not thinking daily, but perhaps every month or so?
- solarkraft 9y ago
  I believe so. The worth of your portfolio is the worth of the assets. Bitcoin dropped a ton in even a month. There are still changes of a few percent possible in less than a day, so yearly balancing sounds insanely dumb to me.
  - ericd 9y ago
    Index funds are usually market cap weighted, so day to day changes in value don't require rebalancing, since if a security suddenly doubles, its market cap does too, and it's therefore still held in the correct proportion to the other securities in the index.
- slg 9y ago
  Yes, at the most general level highly volatile assets should be rebalanced more frequently. However, that isn't going to be a universal rule. It will depend on what is causing the volatility and whether that is more a product of the market or something specific related to the assets. Rebalancing too frequently is also a very real possibility so more is not always better. Another consideration specific to cryptocurrencies like Bitcoin is the relatively high transaction fee. You don't want to see your investments be whittled away by frequent transaction fees doing unnecessary rebalances. I haven't spent enough time researching cryptocurrencies to know how all these considerations shake out when it comes to this specific index fund, but as a pure gut instinct the annual rebalancing was less frequent than I would have expected from this type of fund.
  - proofofmoon 9y ago
    Rebalancing cryptoassets on the same exchange (without withdrawing to a wallet [1]) doesn't require on-chain transactions. The fee would be the order fill fee, which for GDAX is 0-0.25%, much less than 2% of the account balance. ([1] For the not-your-keys-not-your-coins crowd: if you don't trust Coinbase with the coins, you can't trust it with the fund either.)
- the_gastropod 9y ago
  The point of market cap weighting is that rebalancing is mostly unnecessary. The only events that require a rebalance is when a coin is added or removed from the index.
- nwellnhof 9y ago
  A fund weighted by market cap doesn't have to be rebalanced. With crypto assets, you only have to adjust for newly mined coins. The Bitcoin supply, for example, is currently growing at about 4% per year. But if the other currencies in the Coinbase Index are mined at a similar rate, yearly rebalancing should be accurate enough.
  - deleted 9y ago
    [deleted]
cies 9y ago
> Coinbase is charging a 2% fee for what amounts to automating a max of 4 transactions a year. I came up with some more they do for 2%/y: * Buy more coins when their fund expands * Secure the shit out of those private keys
- daveguy 9y ago
  > Secure the shit out of those private keys Well I hope they are doing that already. Initial coin buy is part of those 4 / yr.
- vkou 9y ago
  * Secure the shit out of those private keys Are they insured for 100% of the value of the coins on those private keys? If not, you are paying 2% YoY + X%, where X% is your counterparty risk - the odds that someone at Coinbase fucks up, and your money is irreversibly gone.
  - DennisP 9y ago
    That's a good question. If the answer is "yes" then maybe that's the reason for the high fee. Currently they have insurance on their hot wallet coins, which I think is about 5% of the total. The cold wallets aren't insured, but they're paper wallets held in safe deposit boxes all over the world, so it's unlikely that a large percentage would be lost.
- evrydayhustling 9y ago
  Besides the fact that it should cost nothing like 2% of AUM / year, securing the private keys pays for itself when they claim every fork/spin-off coin that distributes based on bitcoin blockchain.
  - e12e 9y ago
    Are you saying coinage handling bcc in a sane manner is the exception, not the rule? Are there any other forks that have enough value/liquidity that they should be "given back" to the buyers?
pazimzadeh 9y ago
The legal text says: "This announcement [...] is not an offer to sell or a solicitation of an offer to purchase interests in any fund or investment vehicle.
moduspol 9y ago
But they can't necessarily make those transactions easily with a ton of money in the fund, right? I mean if the current price of BTC is $10,500, buying $10m worth of BTC will drive up the price as they're doing it. So how can you rebalance accurately if you're affecting the price of these cryptocurrencies while you do it? Or do they just do like a "best guess" and overbuy a little and then sell off to get the balance right? I guess any index fund would have this issue, though.

mlerner 9y ago

The Bitwise HOLD10 (where I work) handles a lot of the hard work around rebalancing and taxes.

mlerner 9y ago

I think rebalancing with Coinbase's selection of coins is pretty easy. When you have a more complex basket (for context, I work at Bitwise Investments, which runs the Bitwise HOLD10 Index), it is more difficult to decide what goes into the basket. For example, several coins (like Neo and Ripple) have supplies that grow and are centrally controlled, but many coins have planned inflation schedules. We know that the supply of many of the large-cap coins is going to grow over the next couple of years, and that needs to be taken into consideration when valuing them. To explain why that is important: if people buy a coin at a certain price _knowing_ that a certain amount of inflation is going to happen, that means investors think that the market cap of the coin is actually much more (think of this like Discounted Cash Flow). Restated, if people buy these coins knowing that the supply is actually going up, that means that they think that the value of the coin is actually much higher than the current market cap. If you want to learn more about indexing methodologies for cryptocurrencies, you should check out our website: https://www.bitwiseinvestments.com/index https://www.bitwiseinvestments.com/index