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 the 24/7 operating hours of centralized and decentralized exchanges (DEXs). .
In addition to being high risk, cryptocurrency trading can also be a time-consuming process. For most investors it can be a daunting task and a barrier to entry 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 busiest sectors of the cryptocurrency market.
Below, we look at how cryptocurrency index products compare to individual tokens and which strategies have produced the best returns.
Index Cooperative
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 traded indices come from Index Coop, such as the DeFi Pulse Index (DPI), the Metaverse Index (MVI), the Data Economy Index (DATA), and the Bankless DeFi Innovation Index (GMI).
If you compare the prices of these indices to the total cryptocurrency market capitalization, you can see how each of them performed compared to the market as a whole.
Since May 29, 2021, which is when data first became available for DPI and MVI on TradingView, the weakness of the decentralized finance (DeFi) sector can be seen in the poor performance of DPI, which is currently down further. 50% while the total market capitalization is up 19.82%.
Over that same time frame, the metaverse index has risen 103% when compared to the price of Ether (ETH), and the gains are even greater when looking at its value in USD terms.
As seen in the chart above, the price of MVI has gone from $42.02 on May 29 to its current value of $118.06, reflecting a 180% gain compared to the 20% rise in total market capitalization. market.
Projects related to the metaverse and non-fungible tokens (NFTs) have been a bright spot in an otherwise weak market for the past six months, and in this case it was beneficial to be invested in a basket of metaverse tokens.
The Data Economy Index and Bankless DeFi Innovation Index have posted losses since their launch. This mirrors the performance of the broader crypto market, which has been in a downward trend 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 as dozens of new NFT projects launch 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).
The NFTI price has gone from $386 on March 5, 2021 to its current price of $1,724, a gain of almost 350%. During that same time frame, the total cryptocurrency market capitalization increased by 30%, demonstrating the strength that the NFT market has experienced over the last 13 months.
eToro Basket
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 Napoleon-X Smart Wallet is a basket that includes some of the most established projects in the cryptocurrency market, such as Bitcoin (BTC), Ether, BNB, Litecoin (LTC), and Cardano (ADA). The DeFiPortfolio contains a large allocation of Ether along with smaller allocations to other projects participating in the DeFi sector, including Polygon and Algorand.
As shown in the chart above, these portfolios have provided returns of 48.6% and 45.3% over the past year, while the total cryptocurrency market capitalization has actually decreased by 5.71% over the same time frame.
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 cryptocurrency market capitalization has increased by 808%, while the price of BTC has increased by 472%.
This suggests that indices offer the opportunity to capture a large percentage of the overall market gains while offering better performance. In many cases, this is a better tactic than trying to pick individual tokens that experience the biggest gains.
The DeFiPortfolio results also highlight the importance of taking profits when there are big gains, as these tend to fizzle out when traders rotate or unforeseen price movements occur.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.