Like a traditional index, a “Crypto Index” is nothing more than a basket of assets, which are individually traded on the cryptocurrency market. An index is very useful to be able to analyze the price variations of various projects and better understand their evolution as well as specific sectors, or to measure and evaluate the management of a manager from a single site or connection point. Its price is calculated according to the prices of each of the assets that make up the index, and therefore its profitability will be the variation of its price from one period to another (it is advisable to see this on a monthly basis to have a correct picture of the performance).
When constructing an index, the aim is to satisfy the demand or appetite of an investor who wants to be in everything (not to miss the rises or to protect himself in the best way in the event of a sharp fall), in short, to be in the market. On the other hand, it seeks to distribute the internal weight of the index in the most balanced way possible, either by concepts such as price, capitalization, users or number of transactions, among many other concepts. The indexes open an advantageous access door to all audiences and profiles, since through this option we can be exposed to a sector, a trend, a market niche or the management of a manager.
Currently, there are hundreds of “Crypto Index” of the most varied in terms of their composition, their strategies and their representation (they do not necessarily have to represent all startups in the crypto sector, or even all cryptocurrencies/tokens listed, or represent the most significant ones. Therefore, I want to leave 2 important reflections regarding indices;
The first one, do not look for short term or exponential returns, a good index seeks in an orderly and safe way every year to do better than the sovereign bonds of many countries in the world or the inflation of your own country.
The second, apart from being an investment vehicle, an index is the best economic indicator of a market or sector, because when we read in the press that the stock market or the cryptocurrency market is going up or down, usually to give you that information they are basing it on an index.
For example, the Spanish stock market is usually measured by its benchmark stock market index, the IBEX35.
Therefore, they are an excellent option for those who want to not only add an asset to their portfolio, but also have an active strategy behind it, so that their management by the investor is totally passive. Among the many advantages they have, we can list several and thus take a better perspective on whether it is an investment product of interest to you or not.
Advantages:
- You do not have to be aware of the market, the index works by you and for you.
- The internal rebalancing of the index itself exposes you to new and potential projects.
- There are no costs associated with admission or entry to participate in the index.
- They allow you to save a lot of money in terms of acquisition. If you acquire an index with 8 tokens in its basket, you pay only once the purchase commission. If you do it individually, you will have to pay 8 purchase commissions of those assets.
- The management is not sentimental, but professional and aseptic. It is done on the basis of specific rules that are set during the creation of the index.
- When acquiring an index, you indirectly have your own asset management.
Disadvantages:
- You have to rely on third parties and their decision making.
- You do not have the tokens that are in the basket, but a representation of them under the ticket of the index itself, which does not allow you to participate in defi products, in staking or to receive AirDrops from these projects.
- As a rule, there are associated management and performance costs (withdrawal of profits) in the form of fees for the manager.
I present my VS120 INDEX
Ticket: VS
Network: Ethereum
Start date: 08/16/2022
Starting price: $100
Management fee: 2% p.a.
Performance fee: 10%
Management: MA120 and MA50
Rebalancing: Monthly
Description:
The VS index will be made under 3 totally different aspects but at the same time very linked to each other, since the sum of all of them will determine the result of the index, these aspects are:
Objective, Construction and Management.
Objective:
The VS token of the VS120 index offers direct exposure to the active management of various underlying assets strategically selected by organic growth, users, infrastructure and market niche, not seeking exposure to a particular sector, but to the active management of various assets present in different sectors. The assets will cover at least 50% of the total market capitalization and will be distributed within the basket according to their weight in terms of the capitalization of each individual asset, seeking to balance the exposure through its ability to raise money from abroad and therefore its market dominance.
Building
Its foundations will be based on assets that represent infrastructure or networks, perpetual derivatives, DeFi and stable currency, given the studied and analyzed growth that these sectors will have in the coming years due to the arrival, not only of institutional money, but also due to the generational change of great heirs worldwide, who will feel more comfortable with this type of investment.
Management:
Without good planning based on continuous decision making, we cannot guarantee professional execution. Through fundamentals, on-chain data, macroeconomic data and technical analysis, this index will base its management on a long term view and decision making will be under daily candlestick timing. Technically, the MA120 indicators mainly, and MA50 as support on certain occasions, will be the tools to optimize the purchase or sale of each asset, apart from an important weight in terms of market entry or exit will be the monitoring of the total market capitalization excluding bitcoin (since the basket lacks this asset) taking this graph as the true thermometer to predict a prolonged uptrend in time (alt season) or, on the contrary, a bearish one (bearseason).