Crypto Indices Offer Wide Access, But Are They Profitable Over the Long Term?

The cryptocurrency market is known for its high volatility and the wild west nature of the space is partly due to many of the assets having small market caps and the 24/7 centralized and decentralized exchanges (DEXs).

Crypto trading is not only high risk, but it can also be a very time-consuming process. Determining which tokens to invest in can be an overwhelming task and barrier to entry for most investors.

For these investors, index investing could be a viable alternative to gain exposure to some of the hottest sectors in the cryptocurrency market.

Here’s a look at how crypto index products compare to individual tokens and which strategies have produced the greatest returns.

index cooperative

Index Cooperative (INDEX) is a decentralized autonomous asset manager that allows investors to create a custom tokenized index using smart contracts.

Several of the most actively traded indices come from Index Coop, including the DeFi Pulse Index (DPI), the Metaverse Index (MVI), the Data Economy Index (DATA) and the Bankless DeFi Innovation Index (GMI).

Plotting the price of these indices versus the total market cap of the cryptocurrency market can help provide insight into how each index is performing relative to the overall market.

DPI/USDT vs MVI/ETH vs Total Crypto Market Cap. Source: TradingView

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 poor performance of DPI, which is down more than 50%, the current total market cap is down 19 .82% up.

Over the same period, the Metaverse index is up 103% compared to the price of Ether (ETH), and the gains are even bigger when looking at its value in USD.

MVI/USD 1-day chart. Source: CoinGecko

As can be seen from the chart above, MVI’s price has surged from $42.02 on May 29 to its current level of $118.06, reflecting a 180% gain compared to the 20% increase in total market cap.

Projects related to Metaverse and non-fungible tokens (NFT) have been a bright spot in an otherwise sluggish market over the past six months, and in this case being invested in a basket of Metaverse tokens has been beneficial.

Tokens in the metaverse index. Source: Index cooperative

The Data Economy Index and the Bankless DeFi Innovation Index have both posted losses since inception. This reflects the performance of the broader crypto market, which has been in a downtrend since its peak in early November 2022.

NFT index

NFTs have been one of the hottest sectors of the past year, but finding the next big crowd pleaser is a monumental challenge with dozens of new NFT projects being launched every day.

An alternative to gain exposure is the NFT Index (NFTI), a basket containing 11 different tokens including Polygon (MATIC), ApeCoin (APE), The Sandbox (SAND) and Decentraland (MANA).

NFTI/USD 1-day chart. Source: CoinGecko

The price of NFTI has surged from $386 on March 5, 2021 to its current price of $1,724, a gain of almost 350%. During the same period, the total crypto market cap increased by 30%, which is a testament to the strength that the NFT market has seen over the past 13 months.

eToro baskets

For those looking for exposure to crypto 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: eToro

Napoleon-X’s smart portfolio is a basket that includes some of the more established projects in the crypto market, including Bitcoin (BTC), Ether, BNB, Litecoin (LTC), and Cardano (ADA). The DeFi portfolio includes a large allocation of Ether along with smaller allocations to other projects involved in the DeFi sector including Polygon and Algorand.

As illustrated in the chart above, these portfolios have produced returns of 48.6% and 45.3% over the past year, while the total crypto market cap has actually declined by 5.71% over the same period.

On a two-year scale, several of eToro’s portfolios have offered returns in excess of 430%, including Napoleon-X, which posted a 709.3% rise. During the same period, the total crypto market cap has increased by 808% while the price of BTC has increased by 472%.

Top portfolios of the last 2 years. Source: eToro.

This suggests that indices offer an opportunity to capture a large percentage of the total gains in the market while also providing a better return. In many cases, this is a better tactic than trying to pick individual tokens that will generate the biggest gains.

Results for DeFiPortfolio also underscore the importance of taking profits when large profits are hit, as these tend to slide away as traders rotate or price action occurs.

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The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should do your own research when making a decision.