Many people like crypto’s investment potential. They see possible dividends despite FTX declaring bankruptcy last year. They see crypto and think it’s the future, despite volatility surrounding it right now.
Some of these individuals feel uncertain about buying just one crypto form, though. They think they’d do better with a crypto index. A crypto index can provide a safer investment option, so let’s talk about them right now. Once you understand this concept, you might buy into one of the more popular ones and make it part of your portfolio.
What is a Crypto Index?
A crypto index involves several crypto forms you buy into as a package instead of purchasing them individually. If you think about a mutual fund, it’s the same concept.
If you buy into one of these crypto indexes, you needn’t select the crypto forms that you feel might do well. Instead, you let a company do that for you. They’ll put the index together using analytics and tools that weigh and predict each crypto form’s current and future viability.
When these companies put together crypto indexes they offer for sale to investors, they look at each currency’s market cap, or market capitalization. They calculate this figure by looking at how many units of a specific coin are available. Then, they multiply this by the current market value against the US dollar. The dollar usually remains relatively stable, which allows these companies to use it as a reference point.
Why Crypto Indexes Make More Sense than Buying Individual Coins
Buying individual crypto forms carries risk. Any investment carries risk, but when you buy into an index, you’re purchasing several crypto forms at once. You only get ones that seem the most viable judging by the index company’s advanced algorithms.
You mitigate your risk by doing this, just as you do by purchasing mutual funds vs. single stocks. Those who like crypto and the potential it carries can invest in it safely this way. You might still lose money sometimes, but if you’re patient, you’ll likely see a profit. This assumes crypto’s viability as an asset over time, similar to how the stock market’s value generally rises as the years pass.
Is There Any Way to Avoid All Crypto Risks?
If you want to avoid all crypto risks, not buying any emerges as your best option. It’s the same as never purchasing a lottery ticket, though. You’ll never win if you don’t play.
Stock market investing involves risk, as does crypto investing. Still, if you have some extra money and want to invest it, a crypto index might do well for you. Remember that the companies that offer these indexes create them using sophisticated algorithms. Their predictions can make you money if you’re willing to gamble.
If crypto seems too risky, even in an index form, you can always put your money in the bank instead. Your money might grow slowly, but you will not lose it.