Coinbase made an interesting move this week by announcing the Coinbase Index Fund. It’s an investment fund that puts its money in the cryptocurrencies supported by Coinbase. Those are currently Bitcoin, Bitcoin Cash, Ethereum, and Litecoin—any cryptocurrencies added to Coinbase/GDAX in the future would be added to the Coinbase Index Fund, too.
Along with the fund, Coinbase launched the Coinbase Index, a way of measuring holistic performance of those same cryptocurrencies. In late Thursday trading, the Coinbase Index stood at $4,285.95 with the following weights:
- Bitcoin – 62.04%
- Ethereum – 27.24%
- Bitcoin Cash – 6.89%
- Litecoin – 3.83%
Coinbase Index Fund
An index fund is one that invests equally in every investment asset the fund covers. In the stock market, an index fund might cover every company in the DJI, S&P, NASDAQ, tech stocks, mining stocks, or any other targeted group that some investment bank or another put together.
The Coinbase Index Fund is doing the same thing, but for the cryptocurrencies mentioned above. It gives U.S.-based investors an easy way to buy into cryptocurrency markets with broad-ish exposure, without having to worry about the nuts and bolts of keeping their investment balanced.
That said, they’re giving up 2% in an annual fee for the convenience. In addition, the fund is being rolled out only to accredited investors in the U.S. Coinbase said it was working on funds for other markets, too.
2% is high for an index fund—especially for fund that could be fairly easily done by hand—but there’s no real competition for this sort of thing yet. And, Coinbase is making it easy and will likely reap some first-mover benefits.
If you’re interested in the Coinbase Index Fund, you can apply to invest.
The Coinbase Index
The Coinbase Index is an attempt to measure the market as a whole, and is akin to the Dow Jones Industrial Average (DJI). The DJI, often called just “The DOW,” has an almost magical gravitas about it, but at its core, it’s 30 handpicked (and arbitrarily picked) companies intended to represent the economic might of the United States.
That’s where the Coinbase Index comes in. Many observers judge the health of cryptocurrency markets by the performance of Bitcoin. While Bitcoin is the 800 pound gorilla in the industry, other cryptocurrencies are important, too.
As Coinbase put it, “The Coinbase Index is a measure of the financial performance of all assets listed on GDAX, weighted by their market capitalization.”
I suspect it’s going to become an oft-referenced tool for covering cryptocurrency markets.
If you’re interested in getting Bitcoin or other cryptocurrencies without actually buying them, check out my long-running TMO Bitcoin Faucet Guide.