Crypto indexes offer broad access, but are they profitable in the long run?

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

In addition to being high risk, cryptocurrency trading can also be a time-consuming process. It can be a daunting task and a barrier to entry for most investors to determine which tokens to invest in.

For these investors, investing in indices could be a profitable alternative to gain exposure to some of the most popular sectors of the cryptocurrency market.

Here’s how crypto index products compare to individual tokens and which strategies have produced the best returns.

Cooperative Index

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

Several of the most actively traded indices originated 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 against the total market capitalization of the cryptocurrency market can help provide insight into how each one performed compared to the market as a whole.

DPI/USDT vs. MVI/ETH vs. total crypto market cap. Source: TradingView

Since May 29, 2021, which is when DPI and MVI data first became available on TradingView, the weakness of the decentralized finance (DeFi) sector can be seen in the poor performance of DPI, which is currently down more than 50% while the total market capitalization has increased by 19.82%.

Over that same time period, the Metaverse Index has risen 103% compared to the price of Ether (ETH), and the gains are even greater when looking at its value in USD terms.

MVI/USD 1-day chart. Source: CoinGecko

As seen in the chart above, the price of MVI increased from $42.02 on May 29 to its current value of $118.06, reflecting a 180% gain compared to the 20% increase in total capitalization From the market.

Projects related to the metaverse and non-fungible tokens (NFTs) have been a bright spot in a weak market for the past six months, and in this case it was beneficial to invest in a basket of metaverse tokens.

Tokens in the Metaverse Index. Source: Cooperative Index

The Data Economy Index and Bankless DeFi Innovation Index have posted losses since launch. This mirrors the performance of the broader crypto market, which has been trending lower since peaking 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 launching daily.

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 increased from $386 on March 5, 2021 to its current price of $1,724, a gain of nearly 350%. During that same time period, the total crypto market capitalization increased by 30%, demonstrating the strength that the NFT market has experienced over the past 13 months.

eToro baskets

For those seeking exposure to cryptocurrency baskets in a more regulated environment, eToro, a multi-asset brokerage firm, provides access to several “smart wallet” options that have performed well over the past year.

The 2 best smart wallets. Source: eToro

The Napoleon-X Smart Wallet is a basket comprising some of the most established projects in the crypto market, including Bitcoin (BTC), Ether, BNB, Litecoin (LTC), and Cardano (ADA). The DeFiPortfolio contains a large allocation of Ether along with smaller allocations to other projects that are involved in the DeFi sector, including Polygon and Algorand.

As shown in the chart above, these portfolios generated returns of 48.6% and 45.3% over the past year, while the total crypto market capitalization decreased by 5.71% over the same period.

On a two-year time scale, several of eToro’s portfolios have delivered returns of over 430%, including Napoleon-X, which has seen a 709.3% increase. During that same time period, the total crypto market capitalization increased by 808%, while the price of BTC increased by 472%.

Main portfolios in the last 2 years. Source: eToro.

This suggests that indices offer the opportunity to capture a large percentage of the overall gains in the market while offering better performance. In many cases, this is a better tactic than trying to pick individual chips that will see the biggest payouts.

DeFiPortfolio results also highlight the importance of taking profits when big profits are made because they tend to disappear as traders rotate or irregular price movements occur.

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The views and opinions expressed here 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.