Crypto20 and the Rise of Cryptocurrency Index Funds

It has been more than two months since Crypto20 concluded its public crowdsale. Over that period, the value of its tokenized crypto index fund has fluctuated dramatically, reflecting broader movement in the digital currency market. For passive investors, the fund offers a simple and cost effective way to gain exposure to the world’s leading class of cryptocurrencies. It’s often said you get what you pay for. In the case of Crypto20, the underlying token is usually priced at a significant premium over the fund’s net asset value (NAV).

Crypto20: An Introduction

The Crypto20 index fund provides investors with a single asset in which to track the performance of the cryptocurrency market. The portfolio, which launched in October, provides exposure to the top-20 cryptocurrencies by market capitalization, allocating a maximum component weighting of 10%. The fund buys the 20 largest cryptocurrencies and re-balances its position weekly based on the market’s performance.

Investors gain exposure to the fund by purchasing the C20 cryptocurrency, which is normally marked at a significant premium over the NAV price. Although some have argued this points to significant speculation in the market, it may be justifiable to those who are willing to pay a premium for convenience. After all, purchasing 20 cryptocurrencies separately, storing them in different wallets and rebalancing the holdings weekly is a time consuming process that an index fund can take care of much more efficiently.

According to the C20 fact sheet, the fund charges a flat annual fee of 0.5%. There are no other fees associated with the fund and traders can exit at any time.

Indexing is slowly breaking ground in the crypto market. In addition to C20, Bitwise recently launched a cryptocurrency index fund holding the top 10 digital assets. A platform by the name Bit20 also appears to offer a similar product as C20, although the re-balancing is done less frequently. There’s reason to believe these assets will continue to grow as investors adopt conventional assets to play the volatile cryptocurrency market.

Grayscale’s Bitcoin Investment Trust is another traditional asset vehicle that provides exposure to the crypto market, although its entire focus is bitcoin. The fund was conceived in 2013 and has more than $1.7 billion in assets under management (AUM). Total shares outstanding are 175,984,800, according to the fund’s website. Its annual fee is 2%.

Fund Performance

The Crypto20 fund has been extremely volatile since its inception – a feature that cryptocurrency traders have come to expect. The fund’s total value peaked above $164 million U.S. in early January as the cryptocurrency market soared to record highs. Since peaking, it has declined by more than 50% to $70 million.

From a NAV perspective, the fund peaked at $4.05 but is now at $1.72.

The C20 token has followed a similar trajectory, although the coin has only been trading for a few weeks. It was down more than 17% on Monday to $2.13, having reached an earlier low of $1.98.

Trade volumes over the past 24 hours reached $2.8 billion, according to data provider CoinMarketCap.

Disclaimer: The author has no exposure to Crypto20. 

Featured image courtesy of Shutterstock.

 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi