Crypto Index Portfolio Builder

FAQ

What is an index portfolio?

An index portfolio is a simple way to invest in an entire market by owning small pieces of many assets in proportion to their market size. Instead of trying to pick winners manually, you automatically invest more in larger assets and less in smaller ones. For example, if Bitcoin represents 50% of the total crypto market value, your index portfolio would be 50% Bitcoin. This provides broad diversification and removes the need for individual investment decisions.

Why weighting based on market caps?

Market cap weighting aligns your portfolio with market sentiment - when investors believe in an asset, its market cap grows and it gets a bigger share of your portfolio. This follows the efficient market hypothesis framework while providing a systematic way to follow the smart money and protect yourself from risky small assets.

Why should I use an index approach for crypto?

The index approach protects you from single-coin risk in two ways: First, it allocates more money to larger, established assets and less to smaller ones, preventing overexposure to risky small-cap coins. Second, if a coin’s market cap drops significantly, it naturally gets removed from the index and replaced by a better performing asset. This automatic rebalancing helps you avoid holding onto failing assets.

How to create a good crypto index?

Unlike traditional markets with established indices like the S&P500, crypto markets don’t have standardized indices. However, you can easily create your own based on market capitalization data. The simplest approach is to track the top 5, 10, or 20 cryptocurrencies by market cap. Keep in mind that crypto markets are highly concentrated - the top 10 cryptocurrencies represent about 90% of the total market. While smaller portfolios may benefit from tracking fewer assets, crypto’s high divisibility means that even small investors can feasibly track the top 20 or top 100 cryptocurrencies.

Can I build an index that tracks only altcoins?

Absolutely. You can exclude Bitcoin and even other large-cap cryptocurrencies if you want to focus on altcoins. This strategy could work if you believe Bitcoin’s market dominance will decrease or if you want more exposure to smaller-cap cryptocurrencies. However, remember that excluding large-cap cryptocurrencies means potentially missing out on market leaders. A more balanced approach would be to use the distribution flattening feature to increase the weighting of smaller-cap assets while still maintaining some exposure to large-caps.

How often should I rebalance my crypto portfolio?

Most investors rebalance every 3-12 months. Rebalancing means selling some winners and buying underperforming assets to maintain target percentages. With our dollar-cost averaging bots, you can do rebalanced-DCA where you achieve rebalancing by only buying. It that way, you minimize unnecessary taxes while building your long-term portfolio.

What percentage of my investment portfolio should be in crypto?

While many of our users focus heavily on crypto, traditional financial advisors typically recommend allocating only 1-5% of your portfolio to cryptocurrencies. Even this small allocation can provide valuable cross-asset diversification that may improve your overall portfolio’s risk-adjusted returns.

Is this better than just buying Bitcoin?

Focusing solely on Bitcoin is a simple, reliable, and easy-to-recommend strategy. However, for investors interested in gaining exposure to other cryptocurrencies, an index approach is the next best option as it provides systematic diversification.