Why cryptocurrency indices are important
S&P Dow Jones is the biggest Index provider in the world and they just announced that they will be creating cryptocurrency indices starting 2021, find the announcement here. This is a huge deal and we will explain why & how to play this information. As you know, here at Loft Financial we are bullish on altcoins as you can read in our detailed Guide and we also have correctly predicted the recent bull market in this article and the reasons why. Several things have happened since those articles were written that re-inforced our view and especially Paypal being a full blown crypto exchange and giving access to 28Million merchants to spend your coins. See here the most bullish video ever for crypto from Paypal’s CEO. Another big player, VISA announced that they will be issuing a card that will have Bitcoin cashback rewards. Now the real question: What do we do with this information?!
Index Investing
has dominated financial markets in the recent decades as it offers diversification and better risk/reward for the non-professional investors but also for institutional ones. You can see all the S-13 fillings of hedge funds and they always list ETFs among their holdings as it’s really time-consuming to do research on every stock all the time. You can’t buy currently a cryptocurrency index AFAIK unless we are talking about some obscure projects that will probably exit scam you. So having reliable indices is very important. Now the question is how these will be implemented? Is the holy grain of Bitcoin investors, the Bitcoin ETF coming soon as a cryptocurrency Index from S&P? Is it only going to be informative so each institutional or retail investor balances their holdings all the time? Is it only going to be meant as a more legit CMC information desk? Time will tell but it’s not extremely relevant right now.
The players
What we really want to understand is how this new information plays out and what changes. In our opinion the most important thing is that everyone will start seeing on their screens and hearing about other digital assets rather that Bitcoin and see them ticking green usually more than Bitcoin which is more stable. You know what this means? Heavy speculation. It’s rampant since RobinHood changed completely the landscape of investing as much as some people say it directly influences markets and it’s driven by, oh well, greed. Just go and take a look at r/wsb and you will understand the appetite for risk in the currenct environment. It also means something else, that people will have to buy all the coins the index consists of, driving prices of coins that you & I may think are s***t ( XRP we are looking directly at you) UP.
We think that there are 3 types of players:
- Institutional buyers will probably either buy only Bitcoin from Coinbase or some ETF and maybe some Ethereum too.
- Hedge funds that have good risk appetites will probably venture into Crypto Indices and buy up a good mixture of everything to play all the asset class’s alpha potential.
- Speculators consisting of said hedge funds and retail investors will probably start researching and buying altcoins to increase the upside potential creating a new 2017 bubble (it was and it will be as many projects are just meme).
Conclusion
Stay SAFE and don’t speculate with more you can afford to lose and don’t go all in the meme coins you see on Reddit. But the future looks bright for altcoins. What we do is hold 50% Bitcoin, 30% Ethereum and 20% a basket of altcoins so to cover most probabilities and get total diversified exposure. Don’t forget that Bitcoin is KING and ultimately acts as the reserve currency of this asset class much like USD acts and especially during turbulent times their value increases. The most important idea for this is to think how you can escape a market crash when you hold an altcoin. You first need to BUY BTC and then SELL the altcoin. That immediately means that if the market is going down 10% your altcoin will go down let’s say 15% and Bitcoin only 5%. Same works backwards when there is a bull market and you can see how altcoins outperformed the last weeks.
P.S If you value the information here please consider subscribing to the newsletter.
Disclaimer: The information on this site is for informational purposes and isn’t financial advice. We cannot guarantee that you will have the same results as we have nor can we guarantee that the information shared here is appropriate for you. This is not financial advice and not given by professionals.
Originally published at https://loftfinancial.com on December 4, 2020.
