Trading cryptocurrencies can be difficult, but some of the risk can be reduced by investing in crypto indices. Here’s some of what the market has to offer.
The cryptocurrency market is known for its high volatility, and the wild western nature of the space is partly due to many assets having small market caps and centralized and decentralized exchanges (DEXs) operating 24/7.
Besides the high risk, crypto trading can also be a very time-consuming process. For most investors, this can be overwhelming and a barrier to entry when deciding which tokens to invest in.
For these investors, investing in indices can be a viable alternative to gain exposure to some of the hottest sectors of the cryptocurrency market.
Here’s a look at how crypto index products compare to individual tokens and which strategies have generated the most returns.
Index Cooperative (INDEX) is a decentralized autonomous asset manager that allows investors to create their own tokenized index using smart contracts.
Index Coop has created several of the most actively traded indices, including the DeFi Pulse Index (DPI), the Metaverse Index (MVI), the Data Economy Index (DATA) and the Bankless DeFi Innovation Index (GMI).
Graphing the price of these indices versus the total cryptocurrency market cap can help you understand how each of them has performed relative to the overall market.
DPI/USDT vs MVI/ETH vs total crypto market cap. Source: Trade View
Since May 29, 2021, when data for DPI and MVI first became available on TradingView, the weakness of the decentralized finance (DeFi) sector is evident in the underperformance of DPI, which is currently down over 50%, while the overall market capitalization increased by 19.82%.
Over the same period, the Metaverse index is up 103% against Ethereum (ETH) price, and the gain is even bigger when considering its USD value.
MVI/USD on 1-day chart. Source: CoinGecko
As seen in the chart above, MVI’s price surged from $42.02 on May 29 to its current value of $118.06, a 180% increase compared to a 20% increase in the total market cap is equivalent to.
Projects related to Metaverse and Non-Fungible Tokens (NFTs) have been a bright spot in a weak market over the past six months, in which case it was profitable to invest in the Metaverse Token Basket.
Tokens in the metaverse index. Source: Index cooperative.
The Data Economy Index and the DeFi Bankless Innovation Index have both posted losses since launch. This reflects the performance of the broader crypto market, which has been in a downtrend since its peak in early November 2022.
NFTs were one of the hottest sectors last year, but finding the next big crowd pleaser is a monumental task with dozens of new NFT projects launched every day.
An alternative for information is the NFT Index (NFTI), a basket of 11 different tokens including Polygon (MATIC), ApeCoin (APE), The Sandbox (SAND) and Decentraland (MANA).
NFTI/USD on a 1-day chart. Source: CoinGecko
The price of NFTI has increased from $386 on March 5, 2021 to the current price of $1,724, an increase of almost 350%. During the same period, the total cryptocurrency market cap has increased by 30%, which is a testament to the strength of the NFT market over the past 13 months.
For those seeking access to cryptocurrency baskets in a more regulated environment, eToro, a multi-asset brokerage firm, offers access to several “smart portfolio” options that have performed well over the past year.
Top 2 smart portfolios. Source: iToro
The Napoleon-X Smart Portfolio is a basket that includes some of the most prominent projects in the cryptocurrency market, including Bitcoin (BTC), Ethereum, BNB, Litecoin (LTC), and Cardano (ADA). The DeFi portfolio includes large amounts of Ether, as well as smaller amounts for other projects related to the DeFi sector, including Polygon and Algorand.
As shown in the chart above, these portfolios have returned 48.6% and 45.3% over the past year, while the total cryptocurrency market cap has actually declined by 5.71% over the same period.
In two years, several eToro portfolios have returned over 430%, including Napoleon-X, which is up 709.3%. During the same period, the total cryptocurrency market cap increased by 808%, while the price of BTC