The Case For Passive Investing And Index Investing In Crypto
Hey everyone!
Long-term readers may remember that before I got into crypto I actually was a huge fan of stock market index funds.
What if you could do the same in crypto?
Read on if you want to learn more and get a free airdrop.
To celebrate the launch of $AMKT, the Alongside Crypto Market Index, my readers are receiving a $5,000 airdrop of $AMKT, until it runs out, on a first come first serve basis.
Claim it here:
https://claim.alongside.xyz/partner/route2fi
This is a special post for me, I actually was a part of the research team of Alongside in 2022, so seeing them finally launch in January 2023 made me really happy.
See this tweet from March 2022:
Passive investing, or the strategy where the investor buys and holds a diversified portfolio of assets for the long term rather than actively selecting new investments often, has grown in popularity over the last 50 years. Its popularity has grown such that index investing represents as much as 30% of the US equities market in 2023.
Crypto remains a largely speculative space, where "investing" is typically replaced with "trading” – Most people chase the 100x shitcoins over long-term investing. Most long-term holders will dollar cost average (DCA) Bitcoin and Ethereum, while not diversifying much beyond that.
The team at Alongside is changing that: they just launched $AMKT, the Alongside Crypto Market Index, which passively tracks the performance of 25 crypto assets meant to represent the crypto market as a whole.
In this post, we'll explore why index investing will become prominent in crypto, how $AMKT works, and why I think indexes will play a major role in onboarding the next billion crypto participants.
Why indexes will play a major role in onboarding the next billion crypto participants
Let's take the Automobile industry as a first example –– In the early 20th century, there were 1900 Automobile companies. It was *obvious* the industry would be huge, and that there would be serious money in backing the winners. Fast forward decades later, only three are dominating the market in America: GM, Chrysler, and Ford. Most of everyone else, either disappeared or was in a tough spot. Picked any of the 99% of other companies? You likely lost all your money.
Similarly, with the rise of the internet, More than 5,500 companies went public in 2000. Most of those were due to the gold rush of the internet. Between 1995 and 2000, the NASDAQ exploded up 400%, only to subsequently fall 78%, and take a decade and a half to recover. Had you placed your entire bet on Pets*.*com, eToys*.*com, or GeoCities, here again, your money just disappeared. But, luckily for you, a few did survive. Think Amazon, Microsoft, eBay, Qualcomm, and Cisco. You likely would've missed those, and lost it all in others.
Something similar may be happening in Crypto. More than 12,000 crypto assets exist today. Good luck picking the right horse that will win the 10, 20, or 50-year race. Sure, maybe Bitcoin and Ethereum are the obvious winners today and represent the majority of the market, but you'll notice that the top 25 change each cycle, and you don't want to be left holding the wrong bags.
This is where indexes and passive investing come in. Passive investing means investing in the crypto space as a whole, rather than taking gambles on specific coins.
Why is an index beneficial?
- They get rebalanced and track the market: meaning they don't pick sides, and change allocations over time.
- They lower your fees and taxes.
- They make it easy to invest in a category rather than try to pick winners.
For example, by holding $AMKT, you're holding a token that will track the market regardless of who the winner is long-term. This works by having $AMKT rebalance monthly (change proportions in accordance to the market caps of tokens) and reconstituted quarterly (remove tokens that drop out of the top 25 and replace them with those that have moved up.)
In short, when you're buying AMKT, you're buying the current top 25 tokens, and you know that you can check back months later, and you'll still be allocated in proportions to the market at that point in time –– This is true without having to lift a finger, make any trades, or track any charts.
"But, can't I just do this myself?" -- Well, you could. But it would take a lot of effort. You'd have to have wallets for all 25 assets, trade them monthly in accordance with the new market cap, pay fees for each trade, pay taxes on those as well, and basically have to be glued to a computer for a few hours to make it happen.
So, how does $AMKT actually work?
- The methodology is non-discretionary and passive. This means that by definition little to no choices should be made on what's inside the index. The market decides.
- When choices do need to be made (like for exclusion criteria), a DAO formed of the holders and stewards of AMKT tokens takes a vote.
- The token tracks the top 25 assets in the space at any given time, with the goal of closely representing the crypto market. You hold AMKT = you hold the crypto market as a whole.
- AMKT is backed 1:1 with its reserve assets. This means that if the index has $100 of TVL, every dollar of the index is backed by the underlying coins behind it (like Bitcoin, Ethereum, and so on). The token is also redeemable for the underlying assets.
Where can I find AMKT?
- As mentioned earlier in this post, my readers can claim $10 free AMKT here.
- AMKT is available on Uniswap Mainnet and Polygon, Transak, Gate.io, Zerion, and Rainbow)
- Find AMKT on Etherscan (Mainnet and Polygon) and CoinGecko
- You can learn more and ask questions in the Alongside discord here.
It’s clear that the next generation of crypto investors will not always want to day trade and actively invest in specific assets. Instead, many will want to borrow from successful lessons learned in equity markets and passively invest in a token that lets you buy the entire market for the long term without having to lift a finger. $AMKT could very well become a leader in the space during the next bull cycle.
If you want to learn more about $AMKT, you can join Alongside’s community, check out their website, and see the methodology here.
That's it for today, friends!
See you next week.
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