
Coinbase Index Fund - smaili
https://blog.coinbase.com/announcing-coinbase-index-fund-3925fbf548db
======
justinalanbass
I have attempted to duplicate this index fund manually by purchasing the top
25 cryptocurrencies (market-cap weighted) over the past year or so. I'll say
that it was hardly worth the enormous work involved, and these index funds
cannot come soon enough to non-accredited investors. In some cases it's not
possible to do perfectly alone: NEO has a minimum unit of 1 coin, and so if
you wanted it to not be overweighted, you'd need to have a total portfolio
that is an integer multiple of $6700 right now.

However, I would not buy this fund from Coinbase since they are not a neutral
player, and the market is not regulated yet. There are still great advantages
in owning coins yourself - I expect that, as an average investor, I will
certainly be prone to manipulation in some way. Alas, the greatest gains are
probably long-since gone. No risk, no reward.

~~~
haggenballs
I had the same problems with re-balancing my own portfolio and ended up
creating a trading bot that automatically diversifies my investment portfolio
across the top 20 coins by market cap (10% capped). It is heavily inspired by
the crypto20 whitepaper.

For anyone that is interested, you can find the project here: www.hodlbot.io

I'm about 1-2 weeks from the MVP launch. Only the top 20 coins by market cap
fund will be available at the start. In the future users will be able to
create their own custom weightings.

The bot requires users to have a Binance account and uses their API key (trade
only, no withdrawal access), to execute monthly rebalances. Users will always
own their own coins.

At this point, I haven't run into any huge issues with min trading amounts
given a reasonable initial investment amount (~0.5 ETH). For example, the NEO
example you mentioned.... the min trading amount on Binnace is actually 0.01
NEO (~$1.1 USD).

I'll be making the project open source in the future and sharing with you all!

~~~
cableshaft
This is a really clever idea, but as someone who's trying to stay as legal as
I can with reporting my crypto transactions for taxes, this sounds like it
could potentially be a nightmare to report (or possibly to pay taxes on),
especially with the recent GOP addition to the tax reform law that made every
cryptocurrency transaction, even a trade from currency to currency, a taxable
event.

I really wish I could just freely use this as a tool for investment, but the
laws seem pretty draconian right now, and not reflective of the open and
experimental nature of this space.

Once you get this up and going, consider some reporting tools to help keep
track of the transactions, so people can use it for both personal and legal
purposes.

~~~
Osiris
I've found that IRS requirement is really difficult to comply with. Does
anyone have any tips for tracking trades?

~~~
kawfey
Trading is taxed just like capital gains, and mining as income. For small
investments with few trades, it's straightforward and you can likely use a
free service. Beyond a certain threshold (like 200 trades), it's probably
worth using something like [https://bitcoin.tax/](https://bitcoin.tax/) or
[https://cointracking.info/](https://cointracking.info/) which will create
your forms for you after you import (and painstakingly correct) trades, at a
rather steep price ($120/mo) though cointracking has a lifetime buy for
$380...

~~~
redblacktree
Is mining income taxed before conversion to USD? What price would you be
expected to use?

------
Meekro
For anyone wondering why this is better than just buying the coins yourself,
here are some reasons:

1\. Non-technical investors don't know which coins to buy. There are some
genuinely good coins, and lots of scams, and they look pretty much identical
to the untrained eye.

2\. Non-technical investors don't know how to store coins safely. Words like
"cold wallet" and "Trezor" don't mean anything to them. Even if they wanted to
learn, it's hard to separate useful information apart from scams. There was a
guy a while ago who bought a hardware wallet on ebay and lost all his coins.
Even smart people sometimes do dumb things, and in this case it could cost
them everything.

3\. Investment firms with more than 1 person involved have additional
challenges. Who gets the coinbase login? Who gets access to the safe deposit
box where the private keys are held? If only one partner has access, he might
steal the coins and say "we got hacked" and no one can prove otherwise. Or he
might get hit by a bus, and then no one else can get the coins out. If
multiple partners have access, one of them might screw the others and steal
the money and there's no way to know who did it. Crypto nerds will say "use
multi-sig wallets," but that's way too complicated for most people. Screw-ups
when creating a multi-sig wallet could render your coins unspendable.

4\. If you make a crypto portfolio (as opposed to just holding bitcoin),
you'll trigger a capital gains event each time you rebalance. Many people
don't seem to realize that crypto-to-crypto trades are still taxable, but it's
true. If you want to rebalance more than once per year, it becomes short-term
capital gains and your tax rate goes way up.

~~~
evrydayhustling
Disagree with all 4 of these:

1) They are publishing which coins are held by the index, so the choice of
coins is being given away for free, not just to investors.

2) Coinbase's main product is a SaaS account that lets you buy the same coins
without knowing how to manage a wallet - so you can implement the index and
skip the management fee using an account with them.

3) Controlling administrative access to an account with a fund has the same
challenges as controlling administrative access to a coinbase account.

4) Funds have to pass through taxable events to customer (other than some
structures which must pay the tax themselves) -- the taxation doesn't
disappear because it's wrapped by another entity. Plus, the prospectus shows
that the Coinbase fund will only need to rebalance once a year when it
recalculates available supply on Jan 1.

There's really no excuse for the high fees on this fund. It's 100 times easier
to manage than a typical stock index ETF, which must manage many more names
plus dividends, splits, etc. And it charges 20x the fees.

~~~
philipodonnell
> 4) Funds have to pass through taxable events to customer (other than some
> structures which must pay the tax themselves) -- the taxation doesn't
> disappear because it's wrapped by another entity. Plus, the prospectus shows
> that the Coinbase fund will only need to rebalance once a year when it
> recalculates available supply on Jan 1.

Doesn't that depend on the structure? Mutual Funds pass taxable events but I
don't believe Index Funds/ETFs do, since there is an incorporated entity that
you own shares in that is making the trades and paying the taxes.

~~~
stouset
Also, mutual funds can be forced to take fewer taxable distributions since
they can use cash inflows to handle things they’d otherwise need to take a
distribution for.

------
AndrewGaspar
"Available to US accredited investors."

It seems a little ironic that any Joe Blow with a credit card can buy
cryptocurrency, at presumably higher risk since he's managing the assets
himself, but he can't invest in this fund.

~~~
bufferoverflow
This whole regulation is unneeded. You can bring your money to a casino and
put it all on zero. Or buy a thousand lottery tickets. But investing in risky
businesses needs to be walled off to the wealthy.

What we really need is the real consequences for fraud / false financial
claims.

~~~
arcticbull
At the casino your risks are known, and well-defined. In blackjack with basic
strategy your expected value is, what, 49%? Craps, it's similar. Just look it
up. Nobody at the table playing, or even running the show, can manipulate the
outcome except by changing the parameters of the game as posted in the (I
assume) regulated odds boards.

Investing in an unregulated market is absolutely nothing like that. Your
outcome is undefined, but you're subject to front-running, tape painting, wash
trading, fake news stories and tens of other well-known scams.

The regulations aren't to stop the poor from making money. If it were a sure-
fire way to make money, everyone would just do it all the time. It's the
Trumpian "trade wars are easy to win" argument. If it's easy, everyone would
win, so nobody would win, end of story. It's to limit people to what they can
afford to lose (or at least try). And it's done in the social good also, as
people who become insolvent then utilize the social safety net to get back on
their feet.

Yes, we need the real consequences, and what you're describing is literally
regulation.

~~~
mancerayder
But don't they, even in Blackjack, use multiple card decks to kill the odds
calculation unless you're Rain Man?

Sorry, but if cryptocurrency is prone to manipulation and fraud (it is),
casinos are tens times worse because not only do they do that, as the House
must win as a business strategy, but they appeal to people who have addiction
issues.

I'm not against casinos but to defend them against cryptocurrency trading and
suggest average Joe is better off playing Roulette is in my opinion a
misplaced attempt at morality.

~~~
tomkarlo
That's to make it difficult for a player to calculate the odds of a
_particular hand_. The odds of the overall game are still pre-defined and
regulated.

Casinos can't/won't promise that you'll make money by playing their games.
Securities are generally purchased with the expectation that you'll make
money, and are marketed up to the allowable line of suggesting they are good
ways to make money.

Allowing people to play a game where the odds are openly against them, vs.
buying a security where they're being told the odds favor them but it may be
otherwise, are very different propositions when you're asking if they're
"fraud".

~~~
mancerayder
_That 's to make it difficult for a player to calculate the odds of a
particular hand. The odds of the overall game are still pre-defined and
regulated._

My Average Joe brain is too small to calculate probability when there are a
bunch of hands involved, much less one. It is, however, large enough to place
bets on which cryptocoins might be more useful than others, based on a lot of
data and current event news that I have access to.

 _Casinos can 't/won't promise that you'll make money by playing their games.
Securities are generally purchased with the expectation that you'll make
money, and are marketed up to the allowable line of suggesting they are good
ways to make money._

I don't recall Coinbase or any exchange promising anything. And trading is
just that - trading. There are waves of ups and downs of supply and demand, of
various volumes of buys and sells that lead to intraday, intraweek swings in
which you can attempt to play your 'hand'. Even if you don't believe in the
underlying security, you can attempt to ride those waves using technology
provided to you by GDAX or Bittrex or whatever - the entire order book is laid
out for you to learn and think about, and speculate on. That's easier to parse
than odds for .. a blackjack hand? Even a roulette wheel probability play
requires some basic training in probability.

The Casino ALWAYS wins, in aggregate.

 _Allowing people to play a game where the odds are openly against them, vs.
buying a security where they 're being told the odds favor them but it may be
otherwise, are very different propositions when you're asking if they're
"fraud"_

Okay, fine, so then regulate the 'telling' part and not the 'playing' part. I
don't recall being told that the odds favor me. I was presented with an
interface that let me purchase these coins. There were no words telling me
what to do or not to do. The only people telling people what to do are peers
and various Internet news sources that no one is obliged to follow.

~~~
tomkarlo
Consider the contrast between the two things you just said:

* "place bets on which cryptocoins might be more useful than other" * "The Casino ALWAYS wins, in aggregate."

In the former, you expect you have some better than even odds of winning money
-- otherwise you wouldn't be doing it. In the latter you clearly understand
that the odds are against you. See how different those are?

We can argue about the ability to day-trade the cryptocurrency market, but
it's hard to argue that the odds there are more clearly defined than in a
casino. The _reason_ there's a moving market is because we don't all agree on
those odds.

> Okay, fine, so then regulate the 'telling' part and not the 'playing' part

They _do_ regulate the telling part, quite tightly. But it's extremely
difficult to control what people may tell each other outside the bounds of an
issuance document. E.g. the SEC can't control what folks in r/bitcoin might be
out there telling people as reasons to buy this Index fund.

~~~
mancerayder
_Consider the contrast between the two things you just said: "place bets on
which cryptocoins might be more useful than other" "The Casino ALWAYS wins, in
aggregate."

In the former, you expect you have some better than even odds of winning money
-- otherwise you wouldn't be doing it. In the latter you clearly understand
that the odds are against you. See how different those are?

We can argue about the ability to day-trade the cryptocurrency market, but
it's hard to argue that the odds there are more clearly defined than in a
casino. The reason there's a moving market is because we don't all agree on
those odds._

Hold on a second. I never argued that the odds are more clearly defined. How
in the world can you calculate political odds, legal odds, and other odds? Can
you calculate odds on a commodities trade like oil? What happens if a war
breaks out between Iran and Israel? If a new technology takes hold? All of
these things are another way in which odds can't be calculated as cleanly as,
say, a Blackjack hand.

That many in the HN crowd consistently compare stocks and now cryptocurrency
to casinos, and pad their argumentation that casinos are the same or better
with an underlayment of probability calculation -- that shows the inherent
mathematical bias of folks in tech. For how can one ascribe odds to purely
human factors? Here's a probability prediction: chances of this comment being
voted down > 50%.

~~~
tomkarlo
You specifically said "That's easier to parse than odds for .. a blackjack
hand?" Presumably what one is parsing when making a speculative trade is the
odds of a positive outcome.

(You don't need to parse a blackjack hand, btw. The odds are pre-calculated
and easy to look up[0]. But I was talking about the overall odds of playing,
anyway, which is usually about a 0.5% house advantage per hand.)

Note: I'm not arguing that casino odds are better or worse than the odds of a
crypto trade. Just that they're better defined, which you seem to agree with
me on.

[0] [http://www.blackjackage.com/odds-
hand.php](http://www.blackjackage.com/odds-hand.php)

~~~
mancerayder
Right - it seems we agree on that and probably when I wrote:

 _Even if you don 't believe in the underlying security, you can attempt to
ride those waves using technology provided to you by GDAX or Bittrex or
whatever - the entire order book is laid out for you to learn and think about,
and speculate on. That's easier to parse than odds for .. a blackjack hand?
Even a roulette wheel probability play requires some basic training in
probability._

You read that as, the odds are easier to parse for crypto. That's not what I
was saying, even if I worded it poorly such that it could be taken like that.
It's just not an apples to apples comparison, since with a card game you can
construct a mathematical model of probability around it. You can't do that so
easily with many other types of speculation and investment (let's suspend
argument about THAT distinction for a moment).

But my point all along is that _it doesn 't matter_; investments can be
assessed non-mathematically by following non-mathematical sources of data and
making predictions. History, politics, law change and it's extremely difficult
to ascribe statistics to every possible outcome, at least for almost everyone.
Otherwise, there would be no market at all for the vast majority of
'investments' / 'speculations'. Only mathematicians could be involved. Now,
there are people that make a living out of creating statistical models around
stock movements, but that doesn't mean that every other person alive who
doesn't and still pursues purchases of stocks is doing so with more risk than
throwing all their chips on Black 26. And it is the same with cryptocurrency.

To circle back to the original point, yes, I feel it's rather hypocritical
that casino games are open for business for the little guy, but when the
little guy uses a web app with a UI with order book details to try to play the
cryptocurrency market, a tool of the type really mainly known primarily on
stock trading floors until recently, suddenly the little guy needs the law to
step out in front to protect him from himself.

------
myroon5
Seems dishonest to not use a linear scale on this graph:
[https://am.coinbase.com/index](https://am.coinbase.com/index)

Also, the minimum investment and management fee found here don't look too
appealing:

Minimum Investment: $10,000

2% annual management fee

[https://am.coinbase.com/#invest](https://am.coinbase.com/#invest)

~~~
dnautics
why is it dishonest to not use a linear scale? When you're investing, you're
generally looking for relative-yield-over-timescale, which is appropriately
charted as logarithmic.

~~~
DINKDINK
Using a linear scale implies that the growth rate is independent of scale.

Using a log scale implies that the growth rate is dependent on scale.

Depending on your opinion of the market, choose whichever you wish

~~~
dnautics
In the modern era of central bank capitalism, the dominant purpose of
investment is to fight inflation, which is an annualized quantity, so using a
linear scale is nonsensical for the most common practical purposes.

------
gigatexal
Kudos to Coinbase for launching this but a 2% fee and the fact that Coinbase
is far from being trustworthy in my book I am going to wait for when/if a
company like Vanguard starts such a fund.

~~~
enraged_camel
Yeah, at 2% this is more akin to a mutual fund.

~~~
TheCoelacanth
Forget mutual funds. That's closer to a hedge fund.

------
aneesh
That chart is log-scale. The index fell by more than half between December and
February, but you wouldn't know it by glancing at the chart.

~~~
ericmcer
Good eye, that is sketchy. The entire industry seems to be floating on FOMO
right now though, so it definitely serves that purpose.

~~~
sokoloff
It should be labeled or otherwise shown, but I think that semi-log is the most
appropriate choice of scale for long-term price change graphs like this. I can
buy linear-linear for intraday charts, but anything long-term should be log-
linear IMO.

------
theCoindexer
This is a great move by Coinbase to make "owning more crypto" easier for the
average (accredited) investor. But 4 coins != the market.

Like others, we've tried to maintain our own index of top cryptocurrencies,
and experienced all the same repetitive issues of calculating asset shares,
etc.

So we created a tool to help ourselves, and hopefully others:
[https://thecoindexer.com](https://thecoindexer.com). It takes an input
portfolio (on CoinFYI or others) and periodically calculates and emails the
optimal* rebalancing trades to match a target index. Current indexes are based
off CoinMarketCap's top 5, 10 and 25 assets.

We've still got a lot of kinks to work out, but feedback/suggestions are
welcome.

*optimal = fewest # of trades on preferred exchanges

~~~
granaldo
How about buying into top 10 coins from CoinGecko
[https://www.coingecko.com/en](https://www.coingecko.com/en) weighted by
multiple metrics and they got
[https://www.coingecko.com/en/crypto_index/crix](https://www.coingecko.com/en/crypto_index/crix)

------
ThrustVectoring
I'd avoid this. Coinbase knows the time and price of potential crypto
entrants, and this fact can be manipulated to make the fund the bag-holder for
shitcoin pump-and-dumps.

Like, a fundamental thing about market-cap weighted index funds is that they
buy a fixed percentage of a security in the index, regardless of price. If the
fund has 1/100k of the market cap of all the coins listed on Coinbase, you can
buy 1/100k of any coin and offload it at whatever price you can manipulate it
to at the date it enters the index.

~~~
beaner
That seems unlikely given GDAX has publicly released it's criteria for listing
new assets.

[https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...](https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.gdax.com/static/digital-
asset-
framework-2017-11.pdf&ved=2ahUKEwi89vuD-9jZAhUj6YMKHUYiDOIQFjAAegQIBRAB&usg=AOvVaw2rgeXVkdN62gvvzv3y81gH)

------
eftychis
Reading the weighting section of the index fund (
[https://am.coinbase.com/documents/cbi-
methodology.pdf](https://am.coinbase.com/documents/cbi-methodology.pdf) \--
linked in a few sibling comments too) the following statement, while standard
language and approach, makes me wonder in this case:

"The market capitalization of each constituent asset is calculated as the
price of the asset multiplied by the supply of the asset."

There are always some small mistakes in the supply of the asset. Bitcoin
however has a considerable amount of lost coins. This has been discussed a lot
and there are a couple of studies out there (here is a quick link via fortune
(placeholder till I find the original study):
[http://fortune.com/2017/11/25/lost-
bitcoins/](http://fortune.com/2017/11/25/lost-bitcoins/)).

They seem to ignore this fact in their calculations (they follow a fixed
supply approach it appears. Does anyone with experience in investing have any
opinion? Shouldn't indexes at least attempt adjustment?

Note paragraph 2.10 mentions that no supply adjustment ever is going to be
made. I think this considerably inflates the nominal value of the fund (for
the eyes of the world). Thoughts?

~~~
wtvanhest
There is a concept in index weighting called float-adjusted where you remove
shares that have not been issued.

that isnt really the same as what you are talking about, but it is a similar
concept. The real problem would be finding out how many bitcoin exist or have
been lost. I dont think there is any way to do that at this time.

------
habosa
Kind of sad when a major player likes Coinbase invites the pure speculators
in. Yes I know that 99% of people were just speculating before but at least
they had the possibility of transferring their crypto assets off the exchange
and using them for something. Now it's just some magic number you can root
for. It's no more interesting or decentralized than any other financial
instrument.

When you think about it, crypto currencies may have been too successful. The
market got so big that it has to start looking like every other financial
product instead of something different with a chance to shake up finance.

~~~
DennisP
Part of the problem is that if you buy a coffee with cryptocurrency, the IRS
wants you to pay capital gains on that transaction. Personally I've avoided
actually using crypto because I don't want the hassle.

Germany recently passed a law that excludes small crypto transactions from tax
reporting. The U.S. already has this for foreign currencies.

------
argonaut
This is a terrible deal. A 2% annual fee is a hedge-fund-esque fee. For 2% I'd
expect an actively managed fund that gets in on ICO presales, carefully vets
teams/technologies behind new coins and gets in early, has a strategy for
hedging risk, etc. etc.

Instead you get a passively managed fund with FOUR assets that are all tightly
correlated with each other (they all crash at the same time), that is only
rebalanced once a year, and offers no tax benefits. Tax loss harvesting, for
example, is not possible - there are only 4 assets to choose from!

You could replicate this yourself in a few minutes, and you wouldn't need a
script.

~~~
dmichulke
Just to elaborate:

On a yearly basis the only two coins among the top coins that correlate less
with the coins listed in the index are Ripple and Stellar.

Source:

[http://cryptoport.net/blog/diversification-i.html](http://cryptoport.net/blog/diversification-i.html)
(my blog, just scroll down to the correlation matrices)

EDIT: "don't correlate closely" -> "correlate less"

~~~
argonaut
They are still very correlated with the other top crypto coins. In the most
recent crash Stellar and Ripple plunged just the same.

~~~
dmichulke
Fixed it, thanks.

------
an4rchy
Interesting. The fund creates another potential source of revenue for them and
at the same time, the more people that invest in it, the higher it's likely to
go.

Why would anyone choose to invest in a fund that is basically the same as
investing in the 4 currencies they currently support directly (without fees or
limitations on trading)?

~~~
conanbatt
Automatic and cheap balancing.

Its a great business for coinbase: if it had plenty of investors, then they
have a very definite measure on what to ask coin makers before putting their
coin on their exchange.

Figure they can ask 10% of the outstanding tokens in exchange for the
legitimacy that will pump the coin sky high.

~~~
JumpCrisscross
> _Automatic and cheap balancing_

For someone unknown definition of “balancing.” (Rebalancing and re-weighting
or re-constituting are different things.)

~~~
Klathmon
It's only "unknown" if you refuse to read.

[https://am.coinbase.com/documents/cbi-
methodology.pdf](https://am.coinbase.com/documents/cbi-methodology.pdf)

Edit: sorry, this came across more aggressive than I meant for it to be!

~~~
JumpCrisscross
Pardon me, the construction is as transparent as something like this can be,
i.e. generally, whatever their committee feels like. My qualm is with the word
“balancing” which implies diversification as this term is used within
portfolio theory. You can’t balance a book of correlated assets. (You can
_track_ them, which this index tries to do.)

~~~
dmurray
Rebalancing is the correct term of art here. The index reweights, the fund
rebalances its holdings in order to track the new reweighted index. Source:
traded a lot of index funds.

Also, based on the blog post, the fund (or the index managers, who are the
same people here) would say they are rebalancing in your sense of the word
too. They are adding diversification compared to a portfolio that just holds,
say, bitcoin. Sure, it's not as diverse as one that also holds stocks and
bonds and real estate, but nobody's perfect.

------
joshschreuder
If anyone's interested in a similar concept, Iconomi does a number of managed
funds. I don't believe any are actual indexes (BLX comes closest with market
cap weighted -
[https://www.iconomi.net/dashboard/#/daa/BLX](https://www.iconomi.net/dashboard/#/daa/BLX))
but they do cover a number of different crypto spaces.

Also Crypto20 does an index of the top 20:

[https://crypto20.com/en/](https://crypto20.com/en/)

~~~
psteinweber
Yes, much more interesting than the Coinbase 4-coin-index, for me at least.

I have a small amount in one of their DAAs, and as a customer, I really enjoy
the transparency in their communication. They do regular Reddit AMA's
([https://www.reddit.com/r/ICONOMI/](https://www.reddit.com/r/ICONOMI/)),
financial reports on Medium
([https://medium.com/iconominet](https://medium.com/iconominet)), and simply
make me feel like there are real and motivated humans behind. Quite rare in
crypto.

------
machinecontrol
Couldn't anyone just copy the composition of this fund and buy the same
cryptos themselves without paying management fees or being locked in to
Coinbase?

~~~
paulgb
The transaction costs would probably add up to more than 2% depending on how
accurately you wanted to track the index, plus it sounds like a bunch of work.

(Edit: I'm not saying it's actually worth 2%, which seems excessive)

~~~
JumpCrisscross
The index they track reabalances annually [1].

[1] [https://am.coinbase.com/documents/cbi-
methodology.pdf](https://am.coinbase.com/documents/cbi-methodology.pdf) _6.10_

~~~
evrydayhustling
And, since those rebalances reflect only relative changes in supply, the
turnover should be a small fraction of AUM.

------
JustAnotherPat
From [https://am.coinbase.com/](https://am.coinbase.com/):

>* Coinbase Index Fund will invest in assets in proportion to their relative
market capitalizations and rebalance annually on January 1st. This strategy
will track Coinbase Index (Fixed Supply) - a modified version of Coinbase
Index which is adjusted to remove the effect of supply increases, so that it
can be tracked by investors. For more information, see Section 6 of the
Methodology and Construction.

So if you invest in this, you're basically making a bet that 'the flippening'
will not occur because you would lose bigly relative to the market if bitcoin
tanked since they don't rebalance for a year (which is forever in crypto).

------
cocktailpeanuts
"Index fund" has a meaning if the economy itself the fund is built on top of
is stable.

For example, stock market index fund makes sense because stocks are built on
top of capitalism, which has proven to work for a long time. Nobody would buy
a index fund from a communist country, because time has proven communism is
not profitable.

I think people are missing the point if they're investing in crypto index
funds, because the whole point of cryptocurrencies right now is that the
economy it's built on is extremely unpredictable. The whole point of "index
fund" is to minimize risk, but they're not exactly minimizing risk since the
whole industry could just go to zero if something radical happens (for example
BTC crashes), while not really getting a good deal in terms of upsides which
you can get by actively trading.

For most people who lack knowledge I think a better strategy is to invest in
aggressive crypto hedge funds which are springing up like crazy nowadays--that
is, if you value the potential gains more than potential loss.

And for the rest of those who are risk-averse, I would just keep it in the
bank if I were them.

Risk-averse people investing in cryptocurrency is like going to las vegas and
thinking they'll make tons of money.

~~~
icelancer
>>For example, stock market index fund makes sense because stocks are built on
top of capitalism, which has proven to work for a long time. Nobody would buy
a index fund from a communist country, because time has proven communism is
not profitable.

That is not what index funds are for, or aren't for, at all.

Parts of bond index funds I own are invested in "communist" countries and I'm
glad to have the diversification.

~~~
cocktailpeanuts
There is no communist country in the world right now...

~~~
bloak
Was there ever? The Warsaw Pact countries had "communist" parties, but the
country itself was usually called "socialist", and the propaganda tended to
refer to "building socialism", as if they hadn't even finished socialism yet,
let alone communism. So "communism" seemed to be a sort of nirvana that people
were supposed to eternally strive towards rather than something that they
could claim with a straight face they already had.

Anyway, China is ruled by a "communist" party, and I guess they have as much
right as anyone else to decide what they mean by "communist", or whatever the
corresponding expression in Chinese is.

Of course the lack of consensus about what "communism" means is as nothing
compared with the confusion about what "capitalism" means. We can't just
follow Marx because Marx was writing about a world (19th-century England) that
no longer exists.

~~~
cocktailpeanuts
As we agree, there has never been a pure communist country. When I mention
communist country, I'm talking about this hypothetical communist country. If
such an economy did successfully exist, the concept of "money" will be very
different in their world.

I used this as an analogy to explain how the concept of cryptocurrency is very
different from the gold standard or fiat based money we've been accustomed to.

A lot of people think of cryptocurrency as just another speculative investment
asset like stocks, but that's the stupidest thing anyone can do, because
unlike stock market which exists on top of capitalist economy, backed by
government's legal system, cryptocurrency is a whole new world.

In fact, the whole point of cryptocurrency is that it's "trustless"\--if you
lose your money to a scammer, no government will help you, it's your fault for
being an idiot.

Cryptocurrency and stocks look the same to most people because all they see is
a way to get richer, but most of them don't realize they're jumping onto a
completely different economy.

This is why I think index funds are meaningless. Index funds in traditional
economy can never go to zero because governments will bail them out.
Cryptocurrencies in my opinion have a good chance of going to zero (and this
is coming from a cryptocurrency believer). And when it does go to zero, there
is no government to bail anyone out, and coinbase won't help you either,
they'll just move on.

------
philipodonnell
Great to see innovation in the crypto-index space, but as others point out 2%
is way overpriced for some administrative efficiencies and a once a year
rebalancing. This is a very 'classic' approach to the diversification problem,
but as an alternative financial system we should see crypto-focused solutions
that move past this.

I'm working with a group of folks on a version of this that re-balances in
real-time on GDAX with immediate withdrawls, no pass-thru tax burden, and low
monthly fees. If anyone is interested in participating or learning more reach
out to me via email to philip at postral dot com.

------
PNWChris
Dang, I was looking everywhere for something like this just a couple months
ago! I ended up digging through the GDAX API docs, writing a node script, and
scheduling it [0], but I'd rather not be in the business of script
maintenance.

The fees and accredited investor requirement will keep me with what I've got,
though :/

[0]:[https://www.chrisjeakle.com/projects/#gdax-
automation](https://www.chrisjeakle.com/projects/#gdax-automation)

~~~
techman9
Oh man, I do not envy your tax situation...

~~~
PNWChris
It’s been shockingly easy, actually! I do relatively few orders (2 per month)
and can get a record of my filled orders [0] on the day I know my buys will
occur.

I plug those automated buys into a spreadsheet where I maintain a record of my
orders. That spreadsheet does a FIFO capital gains calculation, and I’m good
to go.

I must admit, I haven’t sold yet, so I may just be niave about how 2018 taxes
will go!

[0]: [https://www.gdax.com/orders/fills/BTC-
USD](https://www.gdax.com/orders/fills/BTC-USD)

------
drinchev
There is a person who bought 800$ worth of cryptocurrency via 66 coins [1].

On Day 40 the total value is 388.58$.

1: [https://66shitcoins.com](https://66shitcoins.com)

~~~
m-i-l
Also [https://buyandhold100crypto.com/](https://buyandhold100crypto.com/) .

------
iMuzz
From their Twitter Account. I wonder what kind of "broader digital assets"
they are talking about here? Tokens? ERC721?

"We’re working on launching more funds which cover a broader range of digital
assets. Stay tuned."[0]

[0] -
[https://twitter.com/coinbase/status/971156625951145985](https://twitter.com/coinbase/status/971156625951145985)

------
castratikron
2% fee is pretty high for an index fund.

~~~
mpd
Yeah, there's no way that what they're doing is worth 2% here.

------
comboy
Wow, that doesn't seem wise (at the first glance). These market caps are
really easy to manipulate, especially when you only have to do it annually and
the exact time is specified. Huuge shorts. Bonus points for doing something
like BCH before that to force your coin onto Coinbase (because otherwise
people are gonna complain Coinbase is stealing their coins from the forked
chain).

------
mhoad
As a few others here seem to have hinted at. Although this seems to be not
only an interesting idea and also a natural space for Coinbase it appears to
be limited in a number of different ways. Has anyone had any other experience
with other crypto style index funds such as Crypto20? If so any thoughts,
advice or recommendations would be most welcome.

------
zone411
Coinbase also confirmed on CNBC that their transaction volumes are lower
compared to the peak in Dec/Jan - matches up well with lower transaction
volumes in Bitcoin and Ethereum (despite transaction costs going down), fewer
new wallets created daily, and fewer searches (Google Trends).

------
wepple
Warning: you may want to read up on all the major problems Coinbase have had &
are having with locking people’s funds up and going unresponsive before giving
them actual money.

Frustrating that they’re still launching new products instead of fixing what’s
broken.

------
ttoinou
From this post :

    
    
      Coinbase Index is a measure of the financial
      performance of all assets listed on GDAX,
      weighted by their market capitalization.
    

Methodology : [https://am.coinbase.com/documents/cbi-
methodology.pdf](https://am.coinbase.com/documents/cbi-methodology.pdf)

    
    
      The index level for CBI is calculated by dividing
      the sum of the current USD market capitalizations
      of all constituent assets by the Divisor 
    

I don't see how anything is weighted, it's just the sum of capitalizations
expressed in USD divided by a weird divisor they control to keep the index
smooth

~~~
hexane360
That's automatically weighted by their market capitalization. Capitalization
in USD = price (USD/coin) * capitalization in coins

------
mlerner
I work at Bitwise Investments (venture backed by Avichal Garg - a YC partner),
and some people know us as "the first cryptocurrency index". We think Coinbase
releasing an index is great for the space - diversification is super important
for a crypto portfolio and it is good to see other people working on the
problem. We offer a different basket (Coinbase only offers the coins available
on Coinbase), have different business model incentives, and different focuses.

If investing in a diversifed portfolio seems intriguing to you, and Coinbase's
offering doesn't fit your needs, you should check us out:
bitwiseinvestments.com

Also, we're hiring!

------
headmelted
This just strikes me as really shady - not because I have any reason to
believe that you're not going to get what they're selling you, but that a lot
of non-experts in financial products are familiar with the idea of an index
fund as a (relatively) safe and responsible long-term investment, when this is
clearly neither of those things.

Coinbase even describe this as an investment in their description.

This has more in common with buying a bunch of lottery tickets in a syndicate
for a draw that might not even happen. I wish we'd be more responsible than to
call buying cryptocurrency investing. We know what it is. It is not _this_.

------
pimmen
If cryptocurrencies are the currencies of the future and they're not just an
investment product for people who want to get rich on hype, prove it to me
very simply; spend your cryptocurrency.

Really, it's that simple; use all of them to buy something disposable, or even
invest them if you want, but if you can't bear the thought of being separated
from them for something else then I just don't see how their deflationary
model is offset by their ease of transaction. They're supposed to be the
medium of exchange between valuable goods and services, they're not supposed
to be the valuable good itself.

~~~
philipodonnell
You are right to be suspicious, but there are a wide variety of
cryptocurrencies, some of which are designed to be a medium of exchange
between valuable goods and services and some of which are designed for very
different purposes. Not all are deflationary. Some are supposed to be the
valuable good itself (as a proxy for some physical asset).

------
quickthrower2
Reminder people. Crypto exchange tokens held tokens means counterparty risk.

You don't hold the crypto. They owe you it and they may not pay out due to
court orders, bankruptcy, hackings, they think you are laundering money, a
terrorist etc.

------
modeless
When Coinbase adds a new coin, will they buy the coins for the fund before or
after the announcement? If before, then this fund would actually be useful as
a way to front run the market. But I'm guessing it would be after.

------
DINKDINK
The potential for this fund to motivation market manipulation is large: Given
that the fund rebalances annually, all market manipulators need to do is
'paint the close' on the year, Coinbase is dictated by their terms to go in
and buy up a bunch of the coins rebalance on that 'market cap' that had their
close painted, and then the painted coins are dumped.

I.e. eating up ask liquidity close to year end forces Coinbase to buy up that
removed liquidity at a premium.

------
toothbrush
This looks pretty similar to Crypto20,
[https://crypto20.com/en/](https://crypto20.com/en/). However, Crypto20 is
explicit about your token giving you proxy ownership of the underlying assets.
I am not an expert so i'm not sure if it's a scam or not, but so far it seems
reasonable. Much less stressful than maintaining one's own portfolio, too.

------
iMuzz
There are many people ("traditional" hedge fund managers) outside of the
crypto world that want "exposure" without having to figure out which ones to
pick.

This seems like a perfect product for them.

But from what I understand.. If $100 in invested into the index fund, $67 of
bitcoin is bought, $27 of Ethereum, $7 of Bitcoin Cash, and $4 of Litecoin.

Bitcoin - 62% Ethereum - 27% Bitcoin Cash - 7% Litecoin - 4%

Doesn't that make it so that the market favors incumbents?

~~~
evrydayhustling
Yes, by design! The most traditional way of deciding index weights is by
market capitalization: if the world has thus far allocated more to Bitcoin
than Ethereum, the index will too. Besides concurring with past "wisdom", this
method minimizes management overhead. If Ethereum doubles in price tomorrow,
so that by market capitalization it should have similar weight to Bitcoin, the
index will already be "in position" because the value of it's eth holdings
will have doubled alongside.

~~~
sleepychu
I hadn't considered this, why do you ever need to rebalance then?

~~~
evrydayhustling
Price is one of two inputs driving market capitalization - the other being
available supply. Since many cryptocurrencies continuously issue new supply,
relative supply can change over time. The Coinbase Index rebalances once a
year to track this change.

The other cause of rebalance will be if they add members to the index, which
would also upset all the ratios.

------
dmart
Most cryptocurrencies (especially the few that Coinbase trades) are still so
pegged to the Bitcoin price that it's hard to see any value in this,
especially considering the management fee.

Click between any of the currency graphs on their main page - they all move
together, just with different base values.

------
freech
The entire point of cryptocurrency is to control it yourself, by owning the
private keys. Instead of investing in ethereum with coinbase, why not invest
in a centralized smart contract platform (much easier and even safer as long
as you trust the person who runs it)?

------
tonydiv
How does this compare to Bitwise?

~~~
bankim
Bitwise has better diversification across top 10 currencies based on market
cap. Coinbase has lower entry point of $10k minimum v/s $25k minimum required
by Bitwise.

------
drcode
Anyone reading this, please spend at least a few minutes considering an
alternative investment approach: In my opinion, most HN readers are technical
enough that if they read up on the top 10 coins they would find that quite a
few of those coins have extremely unconvincing future prospects- I won't name
names, but several of the top 10 coins are (in my estimation) based on
EXTREMELY UNCONVINCING ideas.

Before jumping on an index fund, a person on HN should at least consider the
possibility that they may be better off doing some homework and reading up on
the top 10 coins and then only investing in those that have a convincing
technological basis- Index funds are not always a sensible strategy for
markets that are as new as the cryptocurrency market, since proper price
discovery in asset markets is a slow process that requires time.

------
kwikiel
This design will allow Coinbase for adding some tokens they like and profit
immensely from large retail base of investors investing passively in anything
that Coinbase will list - becoming de-facto token curation network

------
msoad
Repeat after me:

    
    
        A good currency is a bad investment

~~~
brokensegue
but what about a basket of four bad currencies?

~~~
Casseres
AAA rating!

------
vinchuco
cue the "return to normal" ?

[https://www.forbes.com/sites/jessecolombo/2013/12/19/bitcoin...](https://www.forbes.com/sites/jessecolombo/2013/12/19/bitcoin-
may-be-following-this-classic-bubble-stages-chart/#4849024736b8)

------
cimmanom
One would think that once there's a stable crypto ETF it'll be included in
Vanguard funds and the like.

------
twblalock
What will happen to the underlying assets, and therefore the value, of this
fund if Coinbase gets hacked?

------
TorKlingberg
Since nobody has posted it yet, the composition is:

* Bitcoin 62%

* Ethereum 27%

* Bitcoin Cash 7%

* Litecoin 4%

So don't expect any of the more obscure cryptocurrencies.

~~~
lavezzi
\+ Because they aren't listed on Coinbase yet, that is obviously subject to
change as time goes on

------
cliftonk
I am mystified as to why coinbase is not performing float or liquidity
adjustments.

------
ellisv
Alternatively there is BITTWENTY (BTWNTY) which is a more diversified index.

------
yashksagar
By having an index fund, are they saying crypto investing is safe now?

------
zerostar07
Are index funds the new subprime mortgage packages?

~~~
loeg
Absolutely not. Cryptocurrency may be.

~~~
zerostar07
so how is the index fund not a looming disaster?

------
snissn
it's not particularly diversified, it's basically just 70% btc/bch and 30% eth

------
andrewmcwatters
Currency isn't an investment.

------
xrd
Accredited investors only. Sigh.

------
sagivo
I don't see the value here. I can simply buy it on Gdax weighted by market
capitalization and save the 2% annual management fees.

~~~
Dramatize
You're not their target customer.

------
ebbv
Does anyone really think this is a good idea when the crypto market is
obviously being heavily manipulated? Specifically by Tether but by others as
well.

The behavior during the last crash showed obvious pumping and fake buy walls,
and was only halted when Tether started printing EURT en masse.

The whole thing is insane.

------
the_cat_kittles
the fact that this is the top post really seems to hammer home the fact that
hacker news is often actually get rich quick news

------
trophycase
I wish that I could choose my own percentage weighting (rather than a market
cap based weight) and have it rebalance to whatever that is. Seems like a good
service for users who couldn't write it themselves.

------
ram_rar
Mix it up with Vanguard and I ll move all my funds from Betterment to
Coinbase.

~~~
conanbatt
What do you mean mix it up with vanguard?

~~~
dsr_
0.15% fee would make it sound more like Vanguard.

