08 / 02 / 21
Skeptical investors with a lower risk appetite have always preferred indices to keep their funds secure or rather at a minimum loss threshold even if one of the assets goes spiraling. Therefore, in order to cater to the demands of such people and to attract more potential investors, S&P Dow Jones has launched an array of crypto indices.
These include S&P Bitcoin Index, S&P Ethereum Index, and S&P Crypto Mega Cap Index. Later this year, they also plan to add more indices to enhance the feasibility and attract more investors, particularly the younger people.
In case you are a newbie in the crypto sphere or you are unaware of the financial markets in detail, please note that an index refers to a collection of assets grouped together to produce an aggregate value. For instance, if the Crypto Mega Cap Index contains 20 cryptocurrencies, the user won’t have to invest in each of them to diversify the portfolio. In fact, he simply needs to invest in the Crypto Mega Cap Index and withdraw profits based on the aggregated movement of the index. Therefore, if, out of 20 coins, only 5 lose 50% of the value while the other 5 retain their value, the overall value of your portfolio would only be affected to about 25%. Moreover, in case 5 coins climb the bull by 50% while the other falls off after bearish news by about 50%, your portfolio’s value will not change as the result of either would be complemented.
This is a part of the diversification plan sought by many institutions in the financial market and S&P has also embarked on a similar plan, which they announced last year. Ultimately, they are looking to add a total of 550 best performing cryptocurrencies in the pool and would also allow the users to create custom indices for taking the trades. Once it’s deployed, it would be one of its kind solutions, particularly for a traditional organization to provide such extensive feasibility to cryptocurrencies.
Moreover, according to the Global Head of innovation and strategy at Dow Jones, the digital assets and traditional financial markets are not different from each other and organizations must provide such feasibilities to stay in the game and ensure their longevity.
In order to offer the functionality, Dow Jones plans to use the data provided by Lukka, which happens to be a virtual currency company based out of New York.
Since cryptocurrency has soared in popularity in the last few years and this bull run in particular experienced a major boom of institutional adoption, it is only going to take a few established investors going heavy on these indices before the rest of the public starts following the trend. Since most of the top investors at Wall Street are already exploring cryptocurrencies and many have even invested in Bitcoin throughout the last years, the approach adopted by S&P Dow Jones is quite likely to pay off in the near future.
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