Data Shows BTC and ETH are More Profitable than Crypto Index Funds

Blockchain advisory and research firm Delphi Digital released a new report on various aspects of the crypto market. In particular, the report focused on Bitcoin (BTC) and Ethereum’s  (ETH) market performance and compared their returns to DeFi and crypto index funds.

In the last 20 years, index and exchange-traded funds (ETFs) have garnered significant attention in the stock market for giving investors safe exposure to a collection of stocks instead of investing in one equity at a time. This trend has also gained currency in the crypto sector where products such as Bitwise 10 Large Cap Crypto Index (BITX) track the performance of the ten largest crypto assets.

While the idea of accessing several large cryptos through one index seems attractive, it’s debatable that the profits returned by these options are just as good as returns of the individual assets they represent. 

Delphi Digital Compares BTC and ETH Profits Against Index Funds

According to data from Delphi Digital, Bitcoin outperformed the Bitwise index following the market bottom of December 2018. The pioneer cryptocurrency was more profitable for its investors, even though Bitwise was less volatile than BTC.

The report states that “indices aren’t meant to outperform individual assets, they’re meant to be lower-risk portfolios compared to holding an individual asset.” Therefore, its understandable how BTC surpassed BITX in terms of cost. 

Bitwise certainly safeguarded its investors against probable risks as selloffs started in May. Although, it’s worth mentioning that the difference, in this case, was “trivial” since Bitwise reported a max drawdown of 50% compared to BTC’s 53%.

Ultimately, it seems that index funds are not superior to cryptocurrencies and they still have to travel the distance before they become a better option for investment.

“Crypto indices continue to be a work-in-progress. Choosing assets, allocations, and re-balancing thresholds is a difficult task for an emerging asset class like crypto. But as the industry matures, we expect more efficient indices to pop up and gain traction,” Delphi Digital noted.

Ethereum Leaves DeFi Index Behind in Profits

The research firm also looked into Ethereum’s performance in the broader context and found that it outclassed decentralized finance baskets. DeFi is unquestionably the hottest sector in the crypto sphere, headlined by exchanges like Uniswap (UNI) and SushiSwap (SUSHI) and loan-related services like AAVE.

In September 2020, the DeFi Pulse Index (DPI) was launched to give exposure to ten of the biggest tokens in the DeFi space. It has since expanded its offerings to a total of 14 tokens.

Since its inaugural, DPI has been left behind by Ether in both profitability and volatility. ETH vastly outperformed DPI with a 57% drawdown compared to the latter’s 65%. But, it must be pointed that this is an “imperfect comparison” because DeFi tokens tend to fluctuate more than Ether.

Nevertheless, it’s still indicative of the fact that cryptocurrencies like BTC and ETH are better for profiteering than crypto-based baskets.