Crypto Index?

Investing
#1

Hey all, any thoughts on investing in a Crypto Index?

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ETF BITO Bitcoin
#2

This is really interesting! Here are my thoughts:

Pros:

  • I like that it automatically allocates funds to market cap weighted crypto currencies. That has the benefit of exposure to smaller cryptos and the “self-cleansing” nature of index funds where new ones are added and old ones drop off.
  • I like that it trades as an ETF so you can buy it right in your regular brokerage account without needing to maintain a crypto wallet

Cons:

  • An eye-watering 2.5% annual expense ratio. If you’re someone who thinks crypto will simply keep up with inflation going forward, expense ratio is ugly. (Stock ETF index funds like VTI have an expense ratio of 0.03% or 83X lower expenses).
  • I think there may be a potential tax benefit to owning crypto directly since it’s not currently subject to the “wash sale” rule. So if you’re down in a crypto you can sell, immediately rebuy then claim your losses on your taxes that year. I don’t think that will fly with the ETF. I’m also skeptical that many individuals are actually correctly filing taxes on crypt trades at the moment.
  • From what I can tell, the price doesn’t seem to track that accurately to its underlying crypto assets. If you look at the BITW fund page the market price is often way over the NAV (net asset value). I believe that means buying it on the open market could result in paying way more than the cost of the underlying crypto. For example in February you could have paid $135 for $50 worth of Crypto… since then crypto has been pretty flat but that market price has tanked resulting in losses for those who bought the ETF version back in February.
  • The taxes from purchasing this fund are reported on a K-1 which is just one more annoyance when filing your taxes.

All in all, it’s interesting! The cons definitely are plenty to keep me away, even if I wanted to invest in crypto. And even if I did want to invest in crypto I’d keep it to a really small portion of my portfolio. What happened the last 10 years may not be what happens the next 10 years!

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