Coinbase recently announced its cryptocurrency index fund, slated to open in 2018.
The company hasn’t created the first index fund of its kind: Upstarts like Bitwise and Iconomi have beaten them to the punch.
But Coinbase is one of the top crypto operators in the world. And its fund is poised to attract significant investment from around the country.
What is the Coinbase Index Fund?
The Coinbase Index Fund lets you invest in all of the cryptocurrencies on GDAX, Coinbase’s official exchange.
The four coins are:
Index funds explained
Buying an index fund means you buy all the securities in an index — or a curated list of investments. For example, the Dow Jones Industrial Average is an index comprising 30 major companies.
Many financial advisors recommend index funds because they give your money broad exposure to the market. Instead of putting all of your money into one security, you spread your money around to decrease risk.
The fund will be weighted by market capitalization , so it’ll consist mostly of bitcoin and Ethereum.
Here’s the exact breakdown:
Bitcoin — 62.04%
Ethereum — 27.24%
Bitcoin Cash — 6.89%
Litecoin — 3.83%
Coinbase will rebalance these percentages as it adds new coins to GDAX. It’ll also adjust the index yearly as the supply of each coin changes.
Can I invest in the Coinbase Index Fund?
Yes. To invest in the Coinbase Index Fund, you must live in the United States.
More important, you must also be an accredited investor, which means:
- You’ve had an income of at least $200,000 in each of the two previous years ($300,000 with a spouse), and you expect to make at least that amount this year.
- Your net worth is at least $1 million, either on your own or with your spouse.
Why do I need to be an accredited investor?
With some types of investments — such as hedge funds, venture capital and cryptocurrency — the US Securities and Exchange Commission (SEC) requires investors to be accredited. This is because the SEC sees high-net-worth individuals as more capable of absorbing the risk that comes with these asset classes.
Currencies and minimum investment
You can buy into the Coinbase Index Fund with US dollars, bitcoin, Bitcoin Cash, Ether and Litecoin.
The minimum investment is $10,000.
How much does it cost?
Coinbase charges a 2% annual management fee for its index fund. It does not charge a performance fee.
When will the Coinbase Index Fund be available?
The Coinbase Index Fund will launch in 2018. If you’re an accredited investor, you can apply through the Coinbase Asset Management website.
How safe is the Coinbase Index Fund?
Cryptocurrency as a whole is volatile, so consider investing only what you can afford to lose. Many financial experts recommend limiting your cryptocurrency investment to under 10% of your entire portfolio.
Coinbase has a strong reputation for security in the cryptocurrency industry. At the time of this writing, the company’s reserves have never been hacked. That may be a point of relief for many investors, as some of the world’s largest exchanges have been hacked at some point (such as Bitfinex, Bithumb and OKEx).
Coinbase will hold investor funds in cold storage — meaning coins are held offline. As such, they’re less susceptible to being stolen by hacks.
Slow customer service is commonplace in the cryptocurrency industry, and Coinbase has been accused more than a few times of responding slowly to complaints. As of now, it’s unclear if the company will put together a dedicated support team for its index fund.
If you have questions about the GDAX Index Fund, head over to Coinbase AM support page.
Pros and cons of the Coinbase Index Fund
Before applying for the Coinbase Index Fund, consider its benefits and drawbacks. Understand what you’re getting into before investing any money.
- Coinbase is among the largest and most trusted cryptocurrency companies in the world.
- The company has an excellent reputation for security.
- Investing in an index fund helps spread your risk among coins.
- Coinbase will manage your investment for you.
- Coinbase, like many other cryptocurrency companies, has a reputation of slowly responding to customer issues.
- Negative news often affects cryptocurrencies across the board. As the Coinbase Index Fund invests in only four coins, your money may not be well insulated from movements in the market.
- You must pay a management fee to participate in the index fund.
What to do next
Coinbase is now accepting applications to join its index fund. You can apply at the company’s website with the following information:
- Your name.
- Your email address.
- The amount you plan to invest — $10,000 to $5 million+.
- Acknowledgement that you’re an accredited investor and a US resident.
Coinbase will email you when its index fund launches in 2018.