Indexing in crypto

7 min readFeb 6, 2021

“Just spread your money across the 10 and HODL”

Solid advice from the depths of Facebook Finance Gurus…. some might even go as far to call it Indexing.

Indexing can be a useful tool in investing but there are a few different theories and not all indexing uses the same data to build an index, but a lot are built around market cap which is what the Facebook gurus are normally looking at.

But there is a big difference being active and passive indexing, you see the theory of buying the current top 10 and hold is great if the current top 10 are going to be cemented as the industry leaders and flourish long term. But the thing with money markets and in particular the crypto market, that top 10 changes all the time.

If you took this path on say the 18th of December 2017 you’re going to have different results from if your started on say the 5th of June 2018, regardless of price action and market conditions based on the fact the top 10 changes all the time.

Not to mention the top 10 by market cap is not an indication of overall performance or an indication of liquidity, these are not equities and the market cap does not dictate what a “crypto company” is worth.
The market cap is simply the current traded price multiplied by the coins in circulation.
A coin that is constantly being printed will have its market cap increase even if the price or performance is down, purely for the fact there are more coins in circulation ever day.

$23.50 (current price) x 1,000,000 (coins in circ) = $23,500,000 market cap
$19.50 (price down) x 1,500,000 (coins in circ) = $29,250,000 market cap

Now the big different here that people probably fail to grasp, is the difference between a passive and an active managed index.
The way most people are looking at it, is in a passive way of buying the current top 10 today and sitting on it for the future…(this is not a good plan at all)
In an active traded index you will actually juggle and reallocate funds proportionally pending market cap size and fluctuations and even when the top 10 changes.

This method although still very sloppy in an argumentative manner is going to be a better way of staying in the top performers over time, how ever still not the best decision if your goal is overall growth.

I'm going to show you an example now just how skewed these results can be using the method of buying and holding the top 10.

Active top 10 on the 18th of December 2017.

Lets run the simulation, with bitcoin at roughly $20,000, lets say we are starting this Index fund with $20,000 USD, spread evenly between the top 10 so $2,000 of each.
Here is what our Index would have looked like on the day of purchase.

Bitcoin $2,000 / 0.1 BTC
Ethereum $2,000 / 2.77 ETH / 0.1 BTC
Bitcoin cash $2,000 / 1.07 BCH / 0.1 BTC
XRP $2,000 / 2777 XRP / 0.1 BTC
Litecoin $2,000 / 6.28 LTC / 0.1 BTC
Cardano $2,000 / 3921 ADA / 0.1 BTC
IOTA $2,000 / 508 IOTA / 0.1 BTC
Dash $2,000 / 1.8 DASH / 0.1 BTC
Nem $2,000 / 2941 XEM / 0.1 BTC
Monero $2,000 / 5.69 XMR / 0.1 BTC

Total USD = $20,000 usd
Total BTC = 1 BTC

XMR down 83% against BTC, 5.69XMR = .02 BTC
XMR down 55% against USD, 5.69XMR = $880 USD
XEM down 90% against BTC, 2941 XEM = .02 BTC
XEM down 73% against USD, 2941 XEM = $860 USD
DASH down 95% against BTC, 1.8 DASH = .005 BTC
DASH down 89% against USD, 1.8 DASH = $215 USD
IOTA down 94% against BTC, 508 IOTA = .006 BTC
IOTA down 86% against USD, 508 IOTA = $262 USD
ADA down 48% against BTC, 3921 ADA = .055 BTC
ADA up 39% against USD, 3921 ADA = $2113
LTC down 79% against BTC, 6.28 LTC = .025 BTC
LTC down 44% against USD, 6.28 LTC = $973 USD
XRP down 91% against BTC, 2777 BTC = .032 BTC
XRP down 56% against USD, 2777 XRP = $1243 USD
BCH down 94% against BTC, 1.07 BCH = .012 BTC
BCH down 87% against USD, 1.07 BCH = $477 USD
ETH down 6% against BTC, 2.77 ETH = 0.12 BTC
ETH up 130% against USD, 2.77 ETH = $4790 USD
BTC up 175% against USD, 0.1 BTC = $3839 USD

Fund results to date

Bitcoin $3839 / 0.1 BTC
Ethereum $4790 / 2.77 ETH / 0.12 BTC
Bitcoin cash $477 / 1.07 BCH / 0.012 BTC
XRP $1243 / 2777 XRP / 0.032 BTC
Litecoin $973 / 6.28 LTC / 0.025 BTC
Cardano $2,113 / 3921 ADA / 0.055 BTC
IOTA $262 / 508 IOTA / 0.006 BTC
Dash $215 / 1.8 DASH / 0.005 BTC
Nem $860 / 2941 XEM / 0.02 BTC
Monero $880 / 5.69 XMR / 0.02 BTC

Total USD = $15,652 USD
Total BTC = 0.395 BTC <<<< Hold onto your SATS god damn it

Now yes yes I'm sure we are going to have some cherry pickers and I reckon if I spent enough time back testing I may find the perfect time and date where you may still be in profit using this method.
But the fact is most people will not buy at the perfect time, in fact they will 9 times out of 10 buy at the exact WRONG time as hype and prices are HIGH.

This strategy can work great if you buy the futures top 10 at the bottom of the market, but you simply dont know what the top 10 are going to be in a years time so good luck trying to guess.

If your dead set on being more of a passive trader/investor in crypto then I would put more time into doing some fundamental analysis and research on tokenomics to see if the coin/token you are interested in may have a future long term.
And rather than splitting your money evenly across 10 coins, maybe devise a plan to change your portion of holdings pending the potential outcome of the project.
As an example low cap high risk use less capital, solid bet high cap use more capital.

Alternatively there are some great products available which I have used in the past called Hodlbot, which ill do an article on next week showing you how to use it.
This can be a great tool for passively investing in an Actively managed port folio based on your own decisions and settings.

Instead of blindly selecting the top 10 putting 1k on each and holding, you can actually pick the coins you want to invest in, set the weight of your port folio which means the % portion of your port folio that you will hold.
Then you can set an automatic or manual rebalancing, meaning as the prices of the assets change and the weight of each asset changes in your port folio, the bot will buy and sell your tokens to rebalance the % again.
This method is essentially buying low and selling high with in a set parameter you allow.
There are some other really cool features that ill run through next week.

The wrap….. Stop listening to random people on Facebook with no credibility offering financial advice or recommendations and do your own research.
Understand how the crypto market works, and hold onto your sats, if your making $$$ but losing SATS, you’re in the wrong trade.

Its the smart money that wins in this game long term so educate your self and find a plan that works for you.
You can still be some what of a passive investor in crypto, and there are some great tools available for you, but you still need to do your due diligence and make sure your are making the right decisions, buying the top 10 is not the answer.