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

In the past two decades, index and exchange-traded funds (ETF) have become some of the most popular forms of investing because they offer investors a passive way to gain exposure to a basket of stocks as opposed to investing in individual stocks which increases risk of loss. Since 2018, this trend has extended to the crypto sector and products like the Bitwise 10 Large Cap Crypto Index (BITX) tracks 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 (UNI). The ability to access multiple top projects through one weighted average market cap index sounds like a great way to spread out risk and gain exposure to a wider range of assets, but do these products offer investors a better return in terms of profit and protection against volatility when compared to the top-ranking cryptocurrencies? Hodling versus crypto basketsDelphi Digital took a closer look at the performance of the Bitwise 10 and compared it to the performance of Bitcoin following the December 2018 market bottom. The results show that investing in BTC was a more profitable strategy even though BITX was slightly less volatile. Bitcoin price vs. Bitwise 10. Source: Delphi DigitalAccording to the report, “indices aren’t meant to outperform individual assets, they’re meant to be lower-risk portfolios compared to holding an individual asset,” so it’s not surprising to see BTC outperform BITX on a purely cost basis. The index did offer less downside risk to investors as the market sold-off in May but the difference was “trivial” as “BTC’s max drawdown was 53% and Bitwise’s was 50%.” Overall, the benefits of investing in an index versus Bitcoin are not that great because the volatile nature of the crypto market and frequent large drawdowns often have a larger effect on altcoins. Delphi Digital said:“Crypto indices continue to be a work-in-progress. Choosing assets, allocations, and re-balancing thresholds is a difficult task for an emerging asset class like crypto. But as the industry matures, we expect more efficient indices to pop up and gain traction.”Ethereum also outperforms DeFi basketsDecentralized finance (DeFi) has been one of the hottest crypto sectors in 2021 led by decentralized exchanges like Uniswap (UNI) and SushiSwap (SUSHI) and lending platforms like AAVE and Compound (COMP). The DeFi Pulse Index (DPI) aims to tap into this rapid growth and the DPI token has allocations to 14 of the top DeFi tokens, including UNI, SUSHI, AAVE, COMP, Maker (MKR), Synthetic (SNX) and Yearn.finance (YFI). When comparing the performance of DPI to Ether since the inception of the index, Ether significantly outperformed in terms of profitability and volatility, as evidenced by a 57% drawdown on Ether versus 65% for DPI. Ether price vs. DeFi Pulse Index price. Source: Delphi DigitalWhile this is an “imperfect comparison” according to Delphi Digital due to the fact that “the risk and volatility of DeFi tokens are higher than Ether’s,” it still highlights the point that the traditional benefits seen from indices are not mirrored by crypto-based baskets.Delphi Digital said:“You could’ve just HODL-ed ETH for a superior risk-return profile.”For the time being, Bitcoin and Ether have proven to be two of the lower-risk cryptocurrency plays available when compared to crypto index funds that offer exposure to a larger number of assets.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Continue Reading

Altcoin roundup: Crypto credit cards could be the missing link to mass adoption

Out of the many routes available to the mass adoption of cryptocurrencies, which includes decentralized finance (DeFi), layer-one protocols, nonfungible tokens and stablecoins, perhaps the simplest and most applicable path for the public at large is the ability to utilize cryptocurrency for everyday purchases with an integrated debit or credit card.2021 has seen a growing number of companies offer cryptocurrency-based credit cards that give holders the chance to tap into the value of their cryptocurrencies for daily purchases, but is this just the latest gimmick being used by businesses to earn a buck or a real sign of mass adoption?While the traditional financial sector isn’t discussed much in this newsletter because its focus is on exploring the various sub-sectors of the cryptocurrency ecosystem, crypto assets are quickly becoming a new investment class recognized by the global financial system.Debit cards tap into crypto holdingsIt’s important to clarify the differences between the card services offered by some of the largest players in the game including Crypto.com, BlockFi and Coinbase. Debit cards like the one offered by Crypto.com allow users to convert their cryptocurrency holdings to a stablecoin that can then be transacted on Visa’s global network. You can now top up your card with $ADA, $DOGE, $LINK, $MATIC, $UNI, along with 12 other new supported stablecoins and tokens! Available in the US, Europe, UK, Canada, Singapore and APAC. Details https://t.co/ChXzOjfxlB pic.twitter.com/qTVsXfy4KZ— Crypto.com (@cryptocom) July 20, 2021The Coinbase card and crypto debit card offered by Uphold provide a similar service, with both offering rewards for use in the form of a percentage of each purchase, paid back in Bitcoin (BTC) or another cryptocurrency, depending on the platform. Being able to make purchases with your holdings may help bring a good use case to the cryptocurrency ecosystem, but it also goes against the “hodl” nature of many investors who subscribe to Gresham’s Law that “bad money drives out good money in circulation.” When it comes to which money is spent and which money is saved, good money, or cryptocurrencies, in this case, will be saved while fiat currencies will be spent in daily transactions. Crypto credit allows hodlers to continue accumulatingCredit cards like the recently launched BlockFi Rewards Visa Signature Credit Card do not require an upfront conversion of a user’s crypto holdings to pay for transactions. Instead, it offers a credit limit with an attached interest rate. Gemini exchange plans to offer a BTC cashback rewards card on the Mastercard network. This is another example that has taken the approach of the legacy credit system by offering rewards and charging interest on carried balances. Users can spend fiat currencies and earn cashback rewards that are paid back in the form of Bitcoin.Paying in dollars while stacking stats lines up more with the idea of spending bad money in daily transactions while earning more crypto, but it does require users to have fiat currencies to spend. In the case where someone only has cryptocurrencies, they would be forced to convert some of their holdings to the accepted form of repayment and possibly incur a taxable event, depending on the laws where they live.Currently, most of the world’s population either still uses the traditional financial system or is part of the large population of the unbanked who are outside of all systems. The injection of blockchain technology and cryptocurrency is either adding another step to the process or offering a new way into a financial network. For die-hard crypto fans that hold as much of their wealth as possible in cryptocurrency, debit card options that allow users to spend their holdings may provide the best option.Traditional financial system vs decentralized financial system. #defi #blockchain #cryptoCredits: Financial times pic.twitter.com/1dc0jJxvm3— BlockchainAssets (@BAXASSETS) December 30, 2019

Since many crypto investors work jobs that still pay in fiat currencies, credit card options offer a way to use their income to make purchases while also continuing to accumulate without having to conduct the conversion to crypto themselves. Related: Bitcoin payments for real estate gain traction as crypto holders seek monetizationLegacy networks will eventually integrate blockchain technologyVisa and Mastercard have fully embraced the integration of cryptocurrencies and blockchain technology into their networks. Visa recently reported that its crypto-enabled cards holders spent more than $1 billion during the first half of 2021.It’s possible that in the near future, the entire network could be blockchain-based and users will be interacting with digital currencies on a regular basis without even knowing it.How it all plays out long-term is anyone’s guess, but the current trend of companies releasing cryptocurrency-related debit and credit cards shows no signs of slowing down. They are a tried-and-true marketing tactic used in industries large and small to help entice new users. Want more information about trading and investing in crypto markets?The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Continue Reading