How Crypto20 stumbled at the finish line
Timing the market is hard — ask anyone who bought Bitcoin at 18k.
Wading through the thousands of crypto coins available, avoiding Ponzi schemes like Bitconnect, and getting great returns? Yep, hard.
Doing both? Nearly impossible.
Index funds in the traditional stock market have grown immensely. Vanguard alone has more the $3 trillion in passive index funds, and has become one of the go to investments for your typical office worker’s 401k.
Index fund benefits — no market timing, no stock picking, scheduled investing
The reason Vanguard has done so well? Simplicity. There is no need to pick a winner when you just buy the whole market. As long as you think stocks as a whole will continue to grow, there is no need to time the market either. Set aside some money to invest in an index fund each month and watch your nest egg grow without ever having to think about it again.
That promise of simplicity is what is so exciting about Crypto20. For anyone who is bullish on crypto as a whole, being able to invest in the top 20 coins with a single token is extremely appealing.
What Crypto20 does right
- Had underlying funds independently audited to confirm they have the holdings they claim to have purchased.
- Rebalance their holdings weekly. Given the volatile nature of the crypto market, and how quickly coins can rise into and fall out of the top 20, frequent rebalancing is a must.
- Allow token holders to redeem their token at any time for the underlying value of the holdings via a smart contract.
- Stakes coins like Dash and NEO to take advantage of the large amount of coins they have in a way individual investors can’t.
And what they did so, so wrong
After putting in all this work to create an appealing index fund for investors, the Crypto20 team made one decision that essentially ruined their fund.
No new Crypto20 tokens will be issued now that the ICO is completed.
This means that unless you participated in the ICO, the only way to get Crypto20 tokens is to buy them on an exchange, often at a premium to the underlying value of the fund.
At the time of this writing, the NAV (net asset value) of the holdings for a single Crypto20 token is approximately $2.12.
If you want to actually purchase a token, you can’t buy it directly from Crypto20. Instead, you have to purchase it from an exchange. At the time of writing, Crypto20 is trading for $2.44 on Bibox.
That’s around a 15% premium over the actual value of the underlying assets. That amount can also fluctuate wildly based on the current exchange rates.
Two of the three benefits of traditional index funds (no market timing and scheduled investing) are unavailable with Crypto20.
Since the token value is different than the value of the underlying assets, it is in your best interest to purchase the token when it is at its cheapest.
To do that, you need to time the market. Which mean you can’t just schedule a weekly or monthly purchase, since you may not be getting the best value for the token price.
In addition, Crypto20 increases the volatility of your purchase since even if the overall market (the NAV value) goes up, if the Crypto20 token value goes down you could still lose money.
Crypto20 should let you purchase tokens from them directly
This is how a traditional index fund works. As new clients come in, fund managers take their money and use it to purchase more assets.
It seems like a small change, but it would give anyone who purchases Crypto20 tokens true index fund style investing in the crypto markets and would in my opinion allow Crypto20 to grow far more than is possible with their current setup.
So let’s hear it Crypto20 — for the next fund you offer, are you interested in a change?
