The popular cryptocurrency exchange Coinbase announced the Coinbase Index Fund to make investing in digital assets as easy as buying any other index fund; you know those comprising of various stocks and/or bonds. In that sense, the company is yet again doing its best to make cryptocurrencies easier to grasp by the general public.
Or does it… let’s delve into details by sharing 5 things you need to know about the Coinbase Index Fund.
1. Coinbase Index Fund is NOT for everyone
Unfortunately, for the time being Coinbase’s latest offering is not open to the general public. Rather, it will only be available to US-resident, accredited investors. In the post announcing the Index Fund, the company said it is working on launching more funds that would be available to all investors and that “cover a broader range of digital assets,” but failed to provide the specifics. Guess we’ll have to wait a little longer to get an all-open Index Fund.
2. The fund lists all digital assets from GDAX
So it’s not just the very limited list of cryptocurrencies offered through coinbase.com, but from the company’s bigger exchange (in terms of the number of cryptocurrencies) – GDAX. And as soon as a new asset is listed GDAX, it will be automatically added to the fund.
3. The fund provides diversified exposure to many cryptocurrencies
Like that’s the case with “regular” index funds, the Coinbase Index Fund provides diversified exposure to a broad range of assets, enabling investors to track the performance of an entire asset class, rather than having to select individual assets. So instead of choosing between Bitcoin and Ethereum — or some other cryptocurrency — with Coinbase Index Fund investors buy into the entire crypto market. Or as Coinbase has put it, the service lets them invest in the “potential of blockchain-based digital assets as a whole.”
4. Coinbase Index
At the heart of the Coinbase Index Fund is Coinbase Index, which tracks the overall performance of the digital assets listed on Coinbase’s Exchange, GDAX. The assets are weighted by market capitalization, with index level taking into account the ongoing increases in supply of each asset, not just changes in price.
The index level is calculated by dividing the current combined USD market capitalization of all constituent assets by the market capitalization as of January 1, 2015, the starting date for the Index. Coinbase Index is reconstituted each time a new asset is listed on GDAX.
The criteria for assets to be listed on GDAX can be found in the GDAX Digital Asset Framework.
5. Coinbase Index is regularly reviewed
The Index itself is reviewed regularly with the Coinbase Index Committee meeting once per quarter to perform the following tasks:
- Review the accuracy and availability of data sources.
- Review calculations of the index level for anomalies.
- Determine whether any changes to the index construction and methodology are required.
You can learn more about Coinbase Index from this document (PDF).