Just HODL! Bitcoin and Ethereum outperform ‘lower risk’ crypto index funds

With the regular cryptocurrency market downturn, the price of crypto assets is largely determined by the performance of the daily Bitcoin and Ethereum values, which can vary widely from day to day. Hence, it is important to optimize returns by investing in the assets that will outperform the daily returns by a wider amount.

As Bitcoin and Ethereum continue to be the two largest cryptocurrencies by market cap, investors are turning to mutual funds that track these two digital currencies for a hedge against the traditional stock market. At least they are according to this report.

There has been a lot of talk recently about how to invest your money in the cryptocurrency space, and one of the most popular ideas is to buy a crypto index fund. These funds are set up to invest in a group of cryptocurrencies, across various exchanges, at a fixed price. There are several different funds to choose from, including the index fund with the highest market cap (e.g. Bitcoin), as well as funds that track the value of different coins (e.g. Ethereum), and funds that invest in a mix of different coins, all within a fixed price (e.g. Bitcoin and Ethereum).. Read more about hodl crypto and let us know what you think.

Index and exchange-traded funds (ETFs) have been some of the most popular types of investing in the last two decades since they provide a passive method for investors to get exposure to a basket of companies rather than investing in individual equities, which increases the risk of loss. 

Since 2018, the Bitwise 10 Large Cap Crypto Index (BITX) has been tracking the total return of Bitcoin (BTC), Ether (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), Solana (SOL), Chainlink (LINK), Polygon (MATIC), Stellar (XLM), and Uniswap (XLM) (UNI).

The opportunity to access several top projects via a single weighted average market cap index seems like a fantastic method to spread risk and get exposure to a broader variety of assets, but can these products give investors a greater profit and volatility protection than the top-ranking cryptocurrencies?

Crypto baskets vs. hodling

Following the market bottom in December 2018, Delphi Digital examined the performance of the Bitwise 10 and compared it to the performance of Bitcoin. Even though BITX was somewhat less volatile, the findings indicate that investing in BTC was a more lucrative approach.

Bitwise 10 vs. Bitcoin pricing Delphi Digital is the source of this information.

“Indexes aren’t intended to outperform individual assets; they’re meant to be lower-risk portfolios compared to owning an individual asset,” according to the study, so it’s not unexpected that BTC outperforms BITX on a strictly cost basis.

Although the index provided investors with reduced downside risk when the market fell in May, the difference was “trivial,” as “BTC’s maximum loss was 53 percent, while Bitwise’s was 50 percent.”

Overall, the advantages of investing in an index against Bitcoin aren’t as significant since altcoins are more susceptible to the volatility nature of the crypto market and frequent big drawdowns.

According to Delphi Digital,

“Crypto indexes are still in the early stages of development. Choosing assets, allocations, and rebalancing criteria for a new asset class like crypto is challenging. However, as the sector develops, we anticipate the emergence of more efficient indexes that will acquire traction.”

Ethereum outperforms DeFi baskets as well.

Decentralized finance (DeFi), driven by decentralized exchanges like Uniswap (UNI) and SushiSwap (SUSHI) and loan platforms like AAVE and Compound, has been one of the hottest crypto industries in 2021. (COMP).

The DeFi Pulse Index (DPI), which includes allocations to 14 of the leading DeFi tokens, including UNI, SUSHI, AAVE, COMP, Maker (MKR), Synthetic (SNX), and Yearn.finance, seeks to capitalize on this fast development (YFI).

When comparing DPI’s performance against Ether’s since the index’s creation, Ether has excelled in terms of profitability and volatility, as shown by Ether’s 57 percent drawdown vs DPI’s 65 percent.

Just HODL! Bitcoin and Ethereum outperform ‘lower risk’ crypto index fundsThe price of Ether vs. the price of the DeFi Pulse Index. Delphi Digital is the source of this information.

While Delphi Digital claims that this is a “imperfect comparison” since “the risk and volatility of DeFi tokens are greater than Ether’s,” it still demonstrates that the conventional advantages of indexes are not replicated by crypto-based baskets.

According to Delphi Digital,

“You could have just HODL-ed ETH for a better risk-to-reward ratio.”

When compared to crypto index funds that provide exposure to a wider variety of assets, Bitcoin and Ether have proved to be two of the lower-risk cryptocurrency bets accessible for the time being.

The author’s thoughts and opinions are entirely his or her own and do not necessarily represent those of Cointelegraph.com. Every investing and trading choice has risk, so do your homework before making a decision.

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