Investing in the cryptocurrency world can be daunting. Volatility is extremely high in comparison to other asset classes and being a successful investor demands a high level of involvement, unless you find yourself jumping in during a bull run. To enable investors to enjoy the cryptocurrency market, without the need to spend hours doing so, Huobi has decided to launch its exchange traded fund (ETF), the Huobi 10 index, which includes Bitcoin, Ethereum, Eos, and Huobi Token (HT), among other cryptoassets.
The index is composed of 10 of the highest volume coins traded against USDT available on Huobi.Pro, and represents the entire blockchain ecosystem. In essence, the index allows investors to passively track the trend of the entire cryptocurrency ecosystem, without relying on the success of a particular coin, such as Bitcoin or Ethereum. Indexes have many advantages, with Warren Buffet himself advising investors to make use of them. Among others, these advantages are: diversification, passivity, reduced fees, and reduced initial investment.
The first and main advantage of investing in indices and ETFs is that you don’t need to actively manage your portfolio through asset monitoring and rebalancing. The portfolio is diversified to the extent of the weights given to each asset, therefore, investors are hedged against all asset specific risks such as technical failures, or tech obsolescence. The unique risk which is inherent in all types of portfolio are market-wide shocks, which affects all coins in the market in the same fashion, such as the one we are currently observing, where all coins follow a downward trend.
The second advantage of index and ETF investing is that they provide higher returns than actively managed funds on a historical basis. The reasons for this are twofold: smaller fees and the removal of human error. In regards to the fees, actively managed funds require one to pay some fees such as those related to management, which paid even when the mutual fund has underperformed its index.
The last advantage is that there is no requirement in regards to the initial investment to be made. According to TechCruch, Coinbase is launching its own ETF, with a minimum of $10,000 funding and a 2% annual percent management fee, while the Huobi 10 index initial investment can be as low as one wants and the fee is the same as when one buys or sell any other type of token on the exchange (0.2%).
Huobi 10 Composition
The index is built on the Paasche price index ratio. The ratio compares the cost of the selected assets according to their weight at current prices with the value of those same assets at base-period prices, with the ratio being multiplied by 100. As of the 28th of May 2018, the index includes BTC (26%), HT (25.6%), EOS (17%), ETH (11.3%), BCH (5.1%), XRP (4.2%), LTC (3.2%), IOST (3%), ETC (2.5%), and DASH (1.7%). In regards to the rebalance of the index, this will occur every quarter. To have more information on how the index is built and rebalanced, we recommend you to read the official principles of the index released by Huobi.
As of now, we are in phase 1 of the “project”, where it is possible to long the index. Later, Huobi is expecting to include financial derivatives, such as shorting and options within its offer as well as the inclusion of the index into financial data aggregators such as Bloomberg, Reuters, or TradingView.
To sum up, the inclusion of an index is good news as it enables passive investors who would like to enter the cryptocurrency market but do not have the time to actively manage their portfolio, and are interesting in holding a diversified portfolio, to enter the market with minimal effort. In essence, it will help them to access cryptocurrencies as an alternative investment, which may attract a new type of investor to the market.
In growing industries, companies usually have no other choice than to innovate to stay a leader in their market, with Bittrex being a good example of a company that failed to do so. In the past few months, Huobi has been actively involved in developing its product offering, promoting blockchain technology, and investing in blockchain R&D, with the creation of Huobi Labs and of its billion dollar investment fund.
Needless to say, the inclusion of HT tokens within the index is highly positive for the growth of Huobi’s native token as the token will grow in the same direction as the exchange due to the law of demand and supply, with the team having stated many times that they plan to increase the utility of HT tokens in the future.
To invest in the index, visit Huobi.Pro.