
Coinbase opens its crypto index fund to accredited U.S. investors - raiyu
https://techcrunch.com/2018/06/12/coinbase-opens-its-crypto-index-fund-to-accredited-u-s-investors/
======
mrep
> Investing in Coinbase Index Fund is the easiest way to get exposure to a
> broad range get of crypto assets. Much cheaper than 2 and 20% charged by
> most crypto hedge funds, and you get new assets automatically added to the
> fund as they become available on Coinbase. No rebalancing. [0]

From their actual site [1], the fees are 2% a year so barely better than those
hedge funds and absolutely atrocious compared to normal index funds. You are
effectively being charged 2% fees for them running some scripts every once in
a while to re-balance the fund compared to stock market index funds which
charge on average around 0.05%. To make matters even worse, their "index"
comprises of only 4 coins! That's hardly an index at all.

[0]:
[https://twitter.com/brian_armstrong/status/10066914902721945...](https://twitter.com/brian_armstrong/status/1006691490272194560?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Ftechcrunch.com%2F2018%2F06%2F12%2Fcoinbase-
opens-its-crypto-index-fund-to-accredited-u-s-investors%2F)

[1]: [https://am.coinbase.com/](https://am.coinbase.com/)

~~~
tonytxie
Hey guys,

Last time this came up, I shared an algo I made to automatically index across
the top 20 coins. Since then I made a hosted version so anyone can use.

It works on top of Binance. Plus you can automatically rebalance daily, weekly
or monthly.

I’ll drop a link here if anyone wants to check it out. Right now, it is free.

[https://www.hodlbot.io](https://www.hodlbot.io)

~~~
tuxxy
I noticed this on your site:

> We encrypt all user data on our end with cryptographically secure hash
> functions.

Can you please tell me if you _actually_ encrypt anything? A hashing function
is not encryption...

------
JumpCrisscross
"Coinbase's trading volumes fell 78% from December to April" [1]. Moreover, it
appears trading volume fell for each of those months (on a month-to-month
basis). If this trend doesn't reverse, they may soon be in a desperate
position.

[1] [https://www.wsj.com/articles/can-the-biggest-u-s-bitcoin-
exc...](https://www.wsj.com/articles/can-the-biggest-u-s-bitcoin-exchange-win-
over-wall-street-1527418800)

~~~
modeless
That's a cherry-picked stat if I've ever seen one. There was a huge bubble in
December that clearly couldn't continue forever. Look a little further back;
they've grown 30x from two years ago. They are unlikely to be in a desperate
position anytime soon. Their revenue from the recent bubble alone ought to
carry them for years.

~~~
JumpCrisscross
> _There was a huge bubble in December that clearly couldn 't continue
> forever_

Which is why I mention the continuous month-on-month declines. January trading
lower than December is expected. But February lower than January? March than
February? April than March? That trend line implies more than just a bubble
popping.

~~~
modeless
No it doesn't. It takes more than a couple of months for these bubbles to pop
all the way, just look at prior ones. Extrapolating the last few months' rate
of decline from the bubble popping would be just as silly as extrapolating the
rate of increase from the last months of the bubble.

~~~
JumpCrisscross
> _It takes more than a couple of months for these bubbles to pop all the way,
> just look at prior ones_

The study of bubbles commonly features exchange failures. A bubble popping
doesn't make declining volumes any more comfortable for Coinbase.

~~~
modeless
_> A bubble popping doesn't make declining volumes any more comfortable for
Coinbase._

Actually it does, since it gave them a cushion of $1 billion in revenue that
should last a good while.

------
1ba9115454
Interesting to think that the private keys for these funds will most likely be
split across several pieces of paper
([https://en.wikipedia.org/wiki/Shamir%27s_Secret_Sharing](https://en.wikipedia.org/wiki/Shamir%27s_Secret_Sharing))
and stored in geographically distributed safes.

That's the only way I can think of doing it offline.

Combining the pieces of paper together to generate the key would need to be
done via a signing ceremony. I think coinbase have a patent for this.

~~~
pests
Is this not basically what the DNS root signing ceremony is?

~~~
kanzure
DNSSEC signing ceremony is significantly more transparent and public :-)
[https://www.iana.org/dnssec/ceremonies](https://www.iana.org/dnssec/ceremonies)

------
aczerepinski
I can’t imagine a world where commerce moves from government backed cash to
hundreds of different crypto currencies.

Even if <pick your favorite> wins, won’t the majority of these coins go to
zero in the long run?

That’s a far different proposition than say the S&P 500, where it’s expected
that the majority of companies will be worth more 20 years from now than they
are today.

~~~
charlesdm
I think there are some interesting use cases that probably aren't even
considered by a lot of people. But I'm not sure how they'll play out.

For example; there could be a time in the future where smaller companies
decide to go public through a token (i.e. an ICO, but with a company, not a
utility token) at a fraction of the cost it currently takes to do an IPO. I'm
not talking about scammy pump and dumps, but an actual company with employees,
assets and a business model.

Underwriter banks generally 1) sell IPO shares below value to their investors
to cause a first day trading pop, meaning less money into the pockets of the
company; and 2) take between 3 to 10% of the raised capital as fees for their
efforts. On tens, hundreds of millions or billions of dollars.

I could see crypto being a more efficient way of doing that, cutting out the
middleman, and where a token represents a share.

~~~
gtlondon
Jay Clayton (Chairman of the SEC) was talking about this last week.

He was saying that the cost / overhead difference between ICO and IPO is so
large that they either need to make IPO'ing easier or perhaps integrate into
crypto in future -- otherwise companies will just ICO instead.

So it could be that crypto helps traditional systems, while reducing costs for
both parties.

~~~
estro
Do you have a link for this discussion? This is interesting.

~~~
gtlondon
I can find a shortened version of the full interview:
[https://youtu.be/wFr1ooaVPjY?t=8m59s](https://youtu.be/wFr1ooaVPjY?t=8m59s)

IPO stuff is from 9 mins, but the whole video is crypto related / fairly
interesting.

------
blondie9x
I'm surprised they actually moved forward with this idea. From the time this
index was announced and tracked on March 6th until the sales began the GDAX
index has fallen by ~50% in a bit less than a few months.

~~~
mrb
I'm surprised you think the price matters. It doesn't. It's an index fund.
Crypto traders will trade it regardless if it's low or high. In fact it's
probably even better to launch it now (low price = buying opportunity.)

~~~
JumpCrisscross
> _I 'm surprised you think the price matters. It doesn't. It's an index
> fund._

Volatility increases tracking error; this benefits traders but hurts
investors.

Furthermore, AUM is not delta neutral. When an asset goes up its ETF attracts
capital; when it goes down the ETF tends to lose capital. Since ETF economics
are a measure on assets under management (AUM), ETF sponsors generally want
their ETF to go up.

~~~
evanpw
I know you said "generally", but there are some significant exceptions (like
VXX):
[https://finance.yahoo.com/chart/VXX#eyJpbnRlcnZhbCI6IndlZWsi...](https://finance.yahoo.com/chart/VXX#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)

Even the prospectus says "The long term expected value of your ETNs is zero":
[http://www.ipathetn.com/US/16/en/details.app?instrumentId=25...](http://www.ipathetn.com/US/16/en/details.app?instrumentId=259118)

------
null0pointer
What is an "accredited investor" anyway? And why does this index fund need to
only be available to them?

~~~
modeless
Government regulations. The SEC defines an accredited investor as a
millionaire, or someone with income > $200k. Millionaires have access to
investment opportunities like this that are illegal to offer to non-
millionaires. The logic is that millionaires are less likely to go broke
because of a bad investment, but it does have a "rich get richer" effect.

~~~
patio11
A _slightly_ more optimistic take is that it's legal to offer this investment
opportunity to non-millionaires. You have two choices:

1) Don't solicit publicly (i.e. don't make a business out of convincing non-
affiliated retail investors to invest in Bitcoin; you can still band along
with friends, family, and fools in a non-scalable fashion)

2) Do solicit publicly, but go through the disclosures-and-compliance process
that society has decided should gate scalable access to retail investors' life
savings

The cryptocurrency economy is largely unwilling to do #2, which is onerous,
expensive, and (ahem) exceedingly difficult to get through if you have
produced nothing of economic substance.

~~~
modeless
No, it's not legal to offer this investment opportunity to non-millionaires,
as the SEC has closed off your option #2. There have been several very serious
efforts at regulatory compliance, involving big players in traditional
finance, that have been rebuffed. Bitcoin index funds are not allowed to do
public offerings right now, no matter how much compliance and disclosure they
do.

Not that I think it would be a great idea for anyone to sink their life
savings into Bitcoin right now, but I think the SEC could do their job
protecting investors without literally creating a 2-class system of rich
privileged people and restricted poor people. For example, they could set
limits on the percentage of your income or net worth you could invest in risky
opportunities. That would allow people of all income levels to participate.

~~~
JumpCrisscross
> _it 's not legal to offer this investment opportunity to non-millionaires
> right now_

Bitcoin futures are legal. The principal issue ETF sponsors are running into
is constructing an index. The SEC isn't thrilled with indices referencing
trades on _e.g._ Bitfinex.

~~~
modeless
We're not talking about Bitcoin futures. The investment opportunity under
discussion here is an index fund.

------
drdrey
The set of people who can dump $250k in crypto assets is a tiny subset of
accredited investors, one would think

~~~
JumpCrisscross
This product is almost certainly targeting RIAs.

~~~
adjkant
Had to look up what an RIA is, so for others:
[https://riabiz.com/a/2011/10/4/what-exactly-is-an-
ria](https://riabiz.com/a/2011/10/4/what-exactly-is-an-ria)

~~~
neals
Which, according to the link, is a "registered financial advisor"...

------
trophycase
Sadly they've added crap like ETC which greatly reduces the appeal of
investing in such an index.

~~~
mike00632
I know. Isn't ETC's most prominent miner suspected to be connected to the
theft that spawned the coin's creation?

~~~
pavlov
ETC isn't the coin that was created to fix a perceived theft — ETH is.

~~~
decentralised
No, ETH is the token of the original chain which we agreed by social consensus
to fork because of an attacker. A public blockchain is a network of people,
and the vast majority of the community is in Ethereum. That's what legitimises
it.

Another example is BTC vs BCH. BCH is the original bitcoin code, but BTC is
the original Bitcoin community.

~~~
diakritikal
>Another example is BTC vs BCH. BCH is the original bitcoin code, but BTC is
the original Bitcoin community.

I think that's a rather disingenuous if not patently misleading statement.

BCH is factually and unequivocally a fork of bitcoin code and blockchain.

~~~
decentralised
At the time of the segwit implementation, BCH kept the old protocol version.

edit: I think you may have a point but I don't see it and you don't make it
clear in your comment either. My point is clear and factual and doesn't need
your approval.

------
Dirlewanger
Wake me when they have an ETF for the lay investor.

------
Sanketk
Coinbase is actually considering ETC enclusion is also a big news

