Crypto Index comparison — Which index has the highest return?

Lukas Wiesflecker
Apr 19 · 9 min read

The crypto market has long since ceased to consist only of Bitcoin and Ethereum. In the meantime, there are thousands of cryptocurrencies in different areas that cover various use cases and are currently enjoying high demand. Besides, new projects are launched almost daily, trying to solve today’s problems with an innovative approach.

For an investor who is not only focused on Bitcoin and Ethereum, it is becoming increasingly difficult to follow the development of the individual cryptocurrencies or the overall market and build a balanced crypto portfolio.

The daily amount of information is immense and makes it almost impossible to keep track of all updates and news. This can lead to losses or opportunity costs that need to be avoided.

Crypto Index for a balanced portfolio

Crypto ETFs are supposed to be a possible solution to this problem. However, crypto ETFs are still in their nascent phase and currently mostly only cover bitcoin. Accordingly, investors who are interested in several cryptocurrencies have to look for other solutions.

An alternative to a crypto ETF is a crypto index. A Crypto Index can contain several cryptocurrencies and is brought together under a single Crypto Fund. This way, the Crypto Index represents all cryptocurrencies behind it in the asset basket.

This saves investors a lot of time, and they no longer have to worry about the performance of individual cryptocurrencies. It is enough to invest in the index cryptocurrency to participate in developing the various cryptocurrencies or the overall market. Diversification, which was only possible in the traditional financial world, is now also coming to the crypto market.

This article will show you which advantages a crypto index can bring with it, which returns have been achieved with it to date and which crypto index is best suited for you.

It has never been so easy to participate in the performance of the different cryptocurrencies or the overall market without having to deal with individual cryptocurrencies 24/7.

What is a Crypto Index?

A Crypto Index is comparable to an ETF from the traditional financial market such as the DAX or the S&P500. Although there are major differences to a Crypto Index, it is also a financial product that covers several assets simultaneously.

Investors can diversify better with a Crypto Index and at the same time participate in the price performance of the individual cryptocurrencies or the overall market.

A crypto index is usually set up according to various criteria that are determined in advance. These criteria are used to decide on the respective cryptocurrencies and their weighting in the Crypto Index.

When setting up the Crypto Index, the issuers pursue different approaches and thus provide various Crypto Indices.

How is the Crypto Index structured?

As already mentioned above, a Crypto Index is compiled according to various criteria. Often, Crypto Indices are constructed according to market capitalization and price development. Besides, certain cryptocurrencies such as stablecoins are excluded.

This is especially true for a crypto index that focuses on the largest cryptocurrencies. Here, for example, cryptocurrencies are included in the top 20 in terms of market capitalization. As soon as a cryptocurrency slips out of the top20, it is replaced with another one.

The situation is similar to a crypto index based on the price performance of individual cryptocurrencies. Moreover, not all cryptocurrencies are listed here, but only those above a certain market capitalization and trading volume.

Other crypto indices, for example, only represent a certain area of application with the largest cryptocurrencies. The most common areas of application include Oracles, NFTs, or DeFi Bluechips.

Accordingly, there are no limits to the structure of the various crypto indices. Therefore, investors enjoy a wide choice and decide on a Crypto Index that meets their own requirements.

Which Crypto Index is the best?

There is no right or wrong with a Crypto Index. The decision is subjective and reflects the needs of potential investors. Each investor decides on his own investment strategy and chooses a suitable Crypto Index for himself accordingly.

To give you a suitable overview of the largest crypto indices, we list the best-known crypto funds below.

This is a Crypto Index of the DeFi analysis site DeFi Pulse. Via the issuer IndexCoop, the DeFi Crypto Index is composed according to various criteria. It is basically a capitalization-weighted index that tracks Decentralised Finance (DeFi) performance across the entire market.

Also, other factors are decisive in the selection and weighting of individual cryptocurrencies. Among other things, weighting is based on the following criteria:

  • Descriptive characteristics of the token
  • Characteristics of the token’s supply
  • Characteristics of the traction of the project
  • Characteristics of the user security of the token

These criteria are reviewed every month after the definition phase, and individual cryptocurrencies are excluded, added, or weighted differently. Currently, a total of 14 cryptocurrencies are included in the DeFi Pulse Index.

This Crypto Index is particularly suitable for investors who see high potential in DeFi. With the DeFi Pulse Index, investors cover the largest and most important DeFi applications and automatically participate in the overall performance of the Crypto Index.

The performance of the DeFi Pulse Index was over 350% within the last 12 months.

Indexed Finance — decentralized Crypto Index

If you are looking for a decentralized version of a Crypto Index, you will find it with Indexed Finance. The decentralized protocol allows investing in different crypto indices in which the respective cryptocurrencies are actually deposited.

Meanwhile, five different crypto indices can be found on Indexed Finance, which can currently be traded on the decentralized exchange Uniswap. Alternatively, the cryptocurrencies representing the respective Crypto Index can be created on the official Indexed Finance site.

The smart contract automatically creates the desired number of the respective index cryptocurrency by buying the respective cryptocurrencies contained in the Crypto Index in the background and putting them into a pool. It works similarly in the other direction. Investors can burn their index cryptocurrencies again and receive the deposited cryptocurrencies in return.

However, this procedure is associated with high transaction costs, which are currently quite high. Therefore, we currently advise buying the index cryptocurrencies directly via Uniswap.

5 Crypto Indices to choose from
Indexed Finance currently lists the following crypto indices:

  • DeFi Top 5 Index (DEFI5)
  • Oracle Top 5 Index (ORCL5)
  • NFT Platform Index (NFTP)
  • Cryptocurrency Top 10 Index (CC10)
  • Degen Index (DEGEN)

Each crypto index was created according to different criteria in the individual areas. The community decided on the respective cryptocurrencies and their weighting.

Rebalancing takes place every hour to adjust the weighting again and again. Also, individual cryptocurrencies can be omitted or included.

Thus, investors can use Indexed Finance to access various crypto indices that cover different areas within the crypto market. Besides, investors can make themselves available as liquidity providers and passively farm the governance token NDX in return. However, this does not come without risk, so we strongly advise against it for beginners.

The performance of the individual crypto indices is not yet representative, as three of the five crypto funds were only created a few weeks ago. The DeFi Top 5 Index was able to achieve over 500% within the last 6 months. The Cryptocurrency Top 10 Index was over 300% in the same period.

Invictus Capital — First Crypto Index Fund in the World

Invictus Capital set a new standard in November 2017 with the Crypto20 Fund. Based on the Crypto20 fund, 6 other funds have been created to simplify diversification in the crypto market.

The most popular crypto index — Crypto20 (C20) — is an index fund that allows investors to invest in a token representing the 20 largest cryptocurrencies by market capitalization. This simplified method is not only cost-effective, but it reduces research and rebalancing requirements for investors.

This allows investors to track overall market performance and take advantage of diversification benefits within the crypto market. C20 offers high liquidity around the clock and requires no minimum investment. The token can be traded directly through the Invictus investor platform or obtained through a 3rd party exchange.

Invictus Capital charges a fee of 0.5% per year, which is low compared to other crypto index providers. Deposited funds are used for staking and other methods to generate an additional return so that a large part of the costs can be covered.

The characteristics and risk profile

C20’s Crypto Index approach provides significant diversification benefits, i.e., less volatility and risk, as the impact of outliers within the portfolio, both upside and downside, is reduced by the 10% cap.

The 10% cap also limits excessive positioning in individual assets such as Bitcoin and Ethereum. In light of Bitcoin’s current dominance, the fund is particularly suitable for investors who expect other cryptocurrencies to take market share from BTC in the future.

The fund’s holdings are rebalanced weekly, with coins and tokens moving in and out of the index regularly.

Also, certain projects are excluded from the fund that does not pass the specially developed screening process. These include, among others, non-existent fundamental value propositions or insufficient liquidity. Stablecoins are also excluded from the Crypto20 fund.

Crypto Index C20 stakes

C20 tokens can also be used to earn loyalty rewards in InvictusCapital.com tokens (ICAP). These tokens get their value using a portion of all fees earned by Invictus Capital (across the range of 7 funds) to buy ICAP on the open market.

As C20 is best suited to a long-term investment horizon, the ability to generate returns in ICAP is a fantastic benefit for the long-term investor.

ICAP is distributed every 30 minutes to investors who lock in their Invictus Capital fund tokens for a fixed period of time. Investors can choose a term of 1 to 12 months — with additional rewards available for longer periods.

C20 can be purchased via the newly designed investor platform at the current token NAV (net asset value). Alternatively, the token can also be traded via Ovex, HitBTC, and several decentralized exchanges, including Uniswap.

Investors can access various crypto indices through Invictus Capital, which covers different areas within the crypto market. Besides, investors can generate passive income by staking from the Crypto Index C20, especially if they pursue a long-term investment horizon, which is recommended here.

The performance of the Crypto20 was over 200% within the last 12 months.

Crypto Index Conclusion

The crypto market offers many opportunities and risks. Therefore, the demand for financial products that offer a good ratio of risk and reward is growing. Also, the overview of the entire market is made more difficult by the high density of information.

A crypto index offers an intelligent solution to participate in selected cryptocurrencies or the overall market. Investors are provided with a financial product for the crypto market that offers investors a suitable means of diversification.

Besides, passive income streams can also be generated through staking, such as from the Crypto Index C20, returns can be increased even further.

A Crypto Index is suitable for any investor who focuses on Bitcoin or Ethereum and follows the latest trends in the crypto market. It has never been so easy to invest in a diversified crypto portfolio.

I share more intimate thoughts in a monthly newsletter that you can check out here. Please let me know in a comment, and let’s build your crypto universe via Patreon. Join me on various social media platforms:

TwitterInstagramPatreon FacebookSnapchatLinkedIn

Join Coinmonks Telegram group and learn about crypto trading and investing

Coinmonks

Coinmonks is a non-profit Crypto educational publication.

Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store