In the past two decades, indexes and exchange-traded funds (ETFs) have become some of the most popular forms of investment because they provide investors with a passive way to gain exposure to a basket of stocks, rather than investing For the loss of individual stocks that increase the risk.
Since 2018, this trend has extended to the crypto industry, with products such as the Bitwise 10 Large-Cap Encryption Index (BITX) tracking the total return of Bitcoin (Bitcoin), ether (Ethereum), Cardano (Have), Bitcoin Cash (Bitcoin cash), Litecoin (LTC), Solana (SOL), Chainlink (LINK), Polygon (MATIC), Stellar (XLM) And Uniswap (UNI).
The ability to access multiple top projects through a weighted average market capitalization index sounds like a good way to diversify risks and access a wider range of assets, but do these products provide investors with better profit returns and protection against volatility versus top cryptocurrencies compared to?
Holding and Encrypting Basket
Delphi Digital carefully studied the performance of Bitwise 10 and compared it with Bitcoin’s performance after the market bottomed in December 2018. The results show that although Bitcoin has slightly less volatility, investing in BTC is a more profitable strategy.
According to the report, “Indices do not mean better than a single asset. Compared with holding a single asset, they mean a lower risk portfolio.” Therefore, we see that BTC outperforms INTX on a pure cost basis. Not surprisingly.
Due to the market sell-off in May, the index did provide investors with less downside risk, but the difference was “insignificant” because “BTC’s maximum decline was 53% and Bitwise’s decline was 50%.”
Overall, the benefits of investing in indexes are not great compared to Bitcoin, because the volatility and frequent sharp drops in the crypto market usually have a greater impact on altcoins.
Delphi Digital says:
“The crypto index is still in progress. For emerging asset classes like crypto, choosing assets, allocation, and rebalancing thresholds is a daunting task. But as the industry matures, we expect more effective indexes to emerge. Get attention.”
Ethereum also outperforms the DeFi basket
Decentralized finance (DeFi) has been one of the hottest crypto industries in 2021, led by decentralized exchanges such as Uniswap (UNI) and SushiSwap (SUSHI), and lending platforms such as AAVE and Compound (COMP).
DeFi Pulse Index (DPI) aims to take advantage of this rapid growth. DPI tokens have been allocated to 14 top DeFi tokens, including UNI, SUSHI, AAVE, COMP, Maker (MKR), Synthesis (SNX) and Yearn.finance (YFI).
Since the establishment of the index, when comparing the performance of DPI and Ether, Ether has significantly outperformed Ether in terms of profitability and volatility. Ether has fallen by 57%, while DPI has fallen by 65%.
Although according to Delphi Digital, this is an “imperfect comparison” because “DeFi tokens have higher risks and volatility than Ether”, it still emphasizes this point, which is the traditional return seen from the index There is no encryption-based basket.
Delphi Digital says:
“You can only hold HODL ed ETH to get excellent risk return.”
Currently, Bitcoin and Ethereum have proven to be two cryptocurrencies with lower risks than crypto index funds that provide a large amount of asset exposure.
The views and opinions expressed here only represent the views of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading action involves risk, and you should conduct your own research when making a decision.