Anyone who has tried to pick winners in the stock market will know that it is very difficult. The mantra “buy low – sell high” is great but the challenge is knowing when to buy and when to sell. The problem for the ordinary investor is that they don't have any insider information. It's like playing a game of poker where everyone else knows the next card – you are the sucker and soon parted from your money.
If this is true in the stock markets it is doubly true in the cryptocurrency markets. Forty percent of all Bitcoins are owned by 1000 people and these whales can move the cryptomarkets, up, down, or sideways. They can stack the deck so they can win every time.
bitcoin is not the only coin
Just as the stock market has many companies, there are many coins. Bitcoin was the first and remains the best known cryptocurrency but there are many others. Investors move their money between these coins and so you might see a headline such as “Bitcoin falls but Ripple gains”.
What is an “Index”?
An Index is simply the sum of a bundle of assets. Famous examples include, FTSE 100 and the S & P 500, the values of these indexes are published every day to give people a quick idea about the direction of the markets. Financial managers have created indexes to track the performance of almost every possible asset class. But why would we want to invest in an index?
Diversification is the key
Without insider information we cannot find the needle in the haystack but there is a way we can win. John Bogle, the visionary founder of Vanguard Investments said,
“Don't look for the needle in the haystack. Just buy the haystack.”
He was the first man to notice that even most professional investors under-perform the market. Rather than pay experts to choose stocks or choose them himself he simply created a fund that tracked the value of the stock market. This was the first Index Fund and as he said,
“The index fund is a sensible, serviceable method for obtaining the market's rate of return with absolutely no effort and minimal expense. Index funds eliminate the risks of individual stocks, market sectors and manager selection, leaving only stock market risk.”
How do I invest in an Cryptocurrency Index?
The cryptocurrency world is very complicated but options include
- Buy an fund (or coin) that tracks an index
- Use software to buy and sell the coins in an index