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Cryptocurrency index funds make no sense in general - the correlation between coins is too negative for holding a basket of them to make sense. You want to dive
by ThrustVectoring 9y ago
Cryptocurrency index funds make no sense in general - the correlation between coins is too negative for holding a basket of them to make sense. You want to diversify over uncorrelated assets. Holding offsetting long and short positions makes zero sense, and due how most alt-coins are priced by their ALT/BTC pair, holding most altcoins essentially means shorting everything other than Bitcoin and maybe Ethereum.
If you want crypto exposure, just buy BTC and Eth. Due to their volatility, you'll want to have a healthy cash balance and target a constant fraction of that in exposure - essentially, selling half your coins if the price doubles and buying back double when the price halves. Read up on the Kelly Criterion for the full explanation as to why.
- ellisv 9y agoI agree. Crypto currencies don’t behave like company stocks. The value of a stock index fund just doesn’t transfer to crypto.
- babaganoosh89 9y agoI think you mean correlation between coins is too positive, all coins tend to move up or down together.
- ThrustVectoring 9y agoIt's both. The correlation is too positive in dollar terms, and too negative once you back out the BTC correlation by repricing things in terms of BTC (which is usually the base currency in crypto-only trading pairs).