Technology

Coinbase Index Fund – Should You Be Investing

Coinbase Index Fund
Image source: Coinbase Blog

Coinbase index fund has been launched on Tuesday, the 6th March 2018. Coinbase has already earned the acronym of ‘Goldman Sachs’ in the Bitcoin space. This crypto exchange occupying the top position in the U.S. has unveiled its plans to allow you buy Bitcoin as well as other altcoins listed on it via a new fund instead of trading these coins directly on coinbase.

Coinbase index fund accessible to accredited investors only

Coinbase which is based out of San Francisco is a startup with a valuation around $1.6 billion making it the most valuable in the cryptocurrency industry and is now seeking to gets its feet wet in the asset management space and is aiming at becoming a significantly broader financial services provider, or perhaps even a full-fledged bank. In November last, Coinbase has overtaken Charles Schwab in terms of active customer accounts. Coinbase index fund proposes to invest in cryptocurrencies traded in the coinbase exchange and GDAX, which is its institutional arm and includes Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.  However, the fund is open only to accredited investors in U.S. or persons whose annual income is a minimum of $200,000 or net worth of $1 million in the least.  But, coinbase is also hoping to launch an identical fund open to all investors without the limitation on income or net worth, and structure the offering as an ETF subject to regulatory approval.

Products for retail investors in the anvil

Reuben Bramanathan, product lead at Coinbase Index Fund, speaking to Fortune stated that the exchange is working towards funds that would be accessible to retail investors of all denominations. He added that this was the first priority and included fulfilling prescribed regulatory requirements. He went on to add that enormous demand was expected from the retail segment when such an offering is made available and that Coinbase was keen on being in a position to accept such a request.

No time line for retail fund set

Bramanathan however declined to specify a timeline for the retail fund to be offered by the company or when the Coinbase Index Fund would start trading, though applications were being currently accepted. The minimum investment required under the Coinbase Index Fund was fixed at $10,000. In the past 12 months, cryptocurrency holdings by Coinbase have returned approximately 995% translating to about 11 fold gains. By comparison, Bitcoin alone has returned about 754% representing an 8.5 fold gain across the same period.

Similar funds failed to take off the ground in the past.

Coinbase index fund is not the first in that class seeking to make passive investments in a group of digital assets similar to investors in the stock market buying a broad S&P 500 fund providing investors with exposure to cryptocurrency asset class without owning bitcoin or its peers directly.

Digital Large Cap Fund, is a similar cryptocurrency product offering a more diversified bitcoin tracking index fund offered by Grayscale Investments, whose parent company is the Digital Currency Group. This fund has investments in 4 cryptocurrencies figuring under the Coinbase index fund and also the XRP from Ripple. December last also saw the HOLD 10 Index fund from Bitwise Asset Management which too includes cryptos like Monero, Stellar and Dash.

SEC approval for Coinbase index fund may be difficult to come by

Interestingly, retail investors cannot access any of the above funds since the SEC has refused approval for traditional financial products investing in cryptocurrency. Ever since a Bitcoin ETF application was rejected by the SEC about an year ago, similar products have faced the same fate from the SEC and during last fall two Bitcoin ETF proposals were withdrawn. In all probabilities, the Coinbase Index Fund is slated to encounter similar resistance.  The SEC meantime has stated that approval will not be given to such products till such time all its concerns including security and price manipulation are resolved.

Coinbase index fund is cheaper

One thing that would possibly distinguish the Coinbase Index Fund is that it is cheaper. The Coinbase Index Fund will be charging 2% fee on assets managed by the fund while it is 2.5% for the Bitwise fund and 3% for the Grayscale fund. Coinbase Index Fund is also accepting investments in cryptocurrency and U.S. dollars. It should also be noted that the fees charged by cryptocurrency funds still remain higher compared to passive stock market funds such as S&P 500 index funds which sometimes charge under 0.1% of assets managed. Cryptocurrency funds might however be better placed to command premium fee, at least till such time more competition appears on the horizon.

Article source: Fortune