Breaking Down the New Coinbase Index Fund

Coinbase Index Fund

Coinbase recently announced that they will be creating their own index fund. The Coinbase index fund will give investors exposure to all the cryptocurrencies on GDAX, Coinbase’s cryptocurrency exchange. There are currently 4 cryptocurrencies tradable on GDAX: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.

The Coinbase Index Fund 

The introduction of Bitcoin futures and this fund are big steps towards normalizing cryptocurrency investing. At the moment the cryptocurrency exchange space is very undeveloped and still has numerous flaws. It is impossible to have a balanced exposure to the digital assets in the current format. The index fund will only be available to “US-resident, accredited investors”. By accredited investor, they mean someone who is willing to put up at least a $10k investment. Coinbase also has plans to launch more funds that will cover an even broader range of digital assets.

The Coinbase Index

Coinbase also introduced the “Coinbase Index” a few days ago. It will “be a measure of the financial performance of all assets listed on GDAX, weighted by their market capitalization.” You can view the index and track its performance here.

Volatility A Potential Issue

Although this is a big step for normalizing investments in digital currencies, their volatility still could be an issue for investors. Cryptocurrencies are known to consistently move, up and down,  as much as 25% in the space of a few hours. Most of the people that are looking to invest in index funds are not looking for volatile investments. The Coinbase index fund may be just as volatile since its performance is dependent on the performance of the cryptocurrencies that trade on GDAX. At the moment, most other cryptocurrencies just tend to follow Bitcoin’s trend.

These 4 cryptocurrencies had some wild swings in 2017. However, volatility has diminished a lot in the past month. If this trend continues this year, this will make the Coinbase Index fund a more appealing prospect for the typical Index fund investor. The fund is still nonetheless a less volatile way of investing in digital currencies versus purchasing them individually.