Is There a Crypto Index Fund?

Crypto index funds are an excellent option for investors who want diversified crypto exposure without buying and managing different coins themselves.

Crypto index funds exist, although they're not yet as common as traditional stock index funds. The basic idea is the same. Instead of picking individual cryptocurrencies, you buy one investment that tracks a basket of crypto assets.

There are now several ways to do this. Some products track a broad basket of cryptocurrencies, while others focus on a smaller group such as Bitcoin and Ether. You can also find products focused on individual assets like Bitcoin, Ether, Solana, or XRP.

What is a crypto index fund?

A crypto index fund is an investment product designed to track the performance of a group of cryptocurrencies.

The fund follows an index with a defined methodology. That index might include the largest cryptocurrencies by market cap, a selection of the most liquid assets, or a specific combination such as Bitcoin and Ether.

The fund then aims to replicate the performance of that index, minus fees and other costs.

For example, the CoinDesk20 tracks 20 major digital assets and is market-cap weighted, with limits on how much any individual asset can contribute to the index. It's also rebalanced quarterly.

This means you don't have to decide whether Bitcoin, Ether, Solana, or another cryptocurrency will perform best. The index decides what gets included and how much each asset contributes.

Crypto index funds can come in different forms. Some are ETFs that trade on a stock exchange, while others are private funds or exchange-traded products available in specific countries. Some hold the underlying crypto assets, while others use futures, swaps, or other derivatives to track their benchmark.

Crypto index funds vs crypto ETFs

Crypto index funds and crypto ETFs are often used interchangeably, but they're not exactly the same thing.

A crypto index fund is defined by what it tracks: a basket or index of crypto assets. It can be structured as an ETF, private fund, or another investment product.

A crypto ETF is defined by how it trades: it's an exchange-traded fund that can be bought and sold on a stock exchange during market hours.

What are the benefits of a crypto index fund?

Diversification

The obvious benefit is diversification. Instead of putting your entire crypto allocation into one asset, you can spread it across multiple cryptocurrencies with a single investment.

That doesn't make crypto index funds low-risk. Most major cryptocurrencies can still fall sharply at the same time, but you're less dependent on the performance of one particular coin.

Less research

You don't need to constantly decide which crypto to buy next.

An index follows a set methodology. If the index is rebalanced and a new asset meets its criteria, the fund can adjust its holdings accordingly. For example, the CoinDesk20 is reconstituted quarterly, allowing the index to change as the crypto market changes.

Easier portfolio management

Buying one fund is simpler than buying 10 or 20 different cryptocurrencies.

You also don't need to manage a collection of wallets, exchange accounts, and individual positions if you're getting your exposure through a brokerage account. This can be particularly useful for investors who want crypto exposure but don't want to actively trade it.

Familiar investment structure

Crypto ETFs and other exchange-traded products can be bought through a brokerage account, depending on where you live.

That means investors can get crypto exposure without setting up a crypto wallet or dealing with on-chain transactions themselves.

What are the risks of a crypto index fund?

Crypto is still volatile

An index fund doesn't remove crypto's volatility. If the wider crypto market falls 50%, a broad crypto index can fall heavily too.

Index concentration

A fund might contain 20 cryptocurrencies, but that doesn't necessarily mean you have equal exposure to all 20.

Market-cap-weighted indexes tend to put more money into the largest assets. For example, Bitcoin can make up a substantial portion of a broad crypto index. Smaller assets may have a much smaller impact on overall performance.

Fees

An index fund isn't free. You'll usually pay a management fee or expense ratio, which reduces your returns over time. You may also face brokerage fees, spreads, or other costs depending on the product.

Tracking error

A fund might not perfectly match the index it's designed to follow. This can happen because of fees, trading costs, rebalancing, derivatives, liquidity, or other factors.

If the product uses futures or swaps rather than holding the underlying cryptocurrencies, its performance can also differ from the spot market.

You don't control the individual assets

If you buy an index fund, you're accepting the fund's methodology. You can't decide that you want more Bitcoin and less XRP unless the fund allows it. If you want full control over your allocation, buying the assets yourself gives you more flexibility.

How to choose a crypto index fund

There are a few things worth checking before buying one.

• What does it track? Look at the actual index rather than relying on the fund's name. Two funds described as "crypto index funds" can have completely different holdings.

• How is it weighted? Some indexes use market-cap weighting, while others use equal weighting or another formula.

• How often does it rebalance? A quarterly rebalance can produce a very different portfolio from one that rarely changes.

• Does it hold crypto directly? Some products hold the underlying assets. Others use futures, swaps, or other derivatives.

• What are the fees? Even a small annual fee can add up over a long holding period.

• Where is it available? Crypto ETFs and funds aren't available in every country.

• How concentrated is it? Check how much of the fund is actually in Bitcoin and the other largest assets.

• Does it include staking? Some products may generate staking income, while others simply provide price exposure.

Types of crypto index funds

There isn't one standard crypto index fund. There are several different ways to build one.

Multi-crypto index funds

These are the closest equivalent to a traditional broad-market index fund.

They track a basket of cryptocurrencies rather than focusing on one asset.

One example is the CoinDesk20, which tracks 20 of the largest and most liquid digital assets. The index excludes stablecoins and memecoins and uses market-cap weighting with limits on individual assets.

The Nasdaq Crypto Index takes a similar broad-market approach. It uses rules around market significance, liquidity, and investability and is rebalanced quarterly.

This type of fund is generally what people mean when they talk about getting broad crypto index exposure.

Bitcoin index funds

Bitcoin-focused funds track the price of BTC rather than a basket of cryptocurrencies.

These aren't diversified crypto index funds in the traditional sense, but they use the same basic idea of tracking an underlying benchmark.

There are now several Bitcoin ETFs and exchange-traded products available in different markets. Some hold Bitcoin directly, while others use futures or derivatives.

For investors who specifically want Bitcoin exposure through a brokerage account, this can be simpler than buying BTC directly.

Ether index funds

Ether funds work in much the same way, tracking the price of ETH. They give investors exposure to Ethereum without requiring them to buy and store ETH themselves.

Some products track spot Ether prices, while others use derivatives. Ethereum ETFs are now regulated and increasing in popularity.

Solana index funds

Solana-focused products track SOL rather than a broader group of cryptocurrencies. The range of Solana products has expanded as institutional access to crypto has grown, including regulated Solana ETFs.

Again, this isn't diversified exposure in the same way as a multi-crypto index. It's essentially a way to get SOL exposure through a traditional investment wrapper.

Leveraged and inverse crypto funds

There are also products designed to provide leveraged or inverse exposure to crypto indexes or individual assets.

A 2x Bitcoin ETF, for example, aims to produce twice the daily return of its benchmark. An inverse fund aims to move in the opposite direction.

These products are much more complicated than a standard index fund because the target is generally based on daily performance; returns over longer periods can differ significantly from simply multiplying the underlying asset's total return.

Are there alternatives to crypto index funds?

Yes. You don't necessarily need an ETF or traditional fund to get exposure to several cryptocurrencies at once.

Crypto baskets

Crypto baskets are probably the closest alternative for retail investors who want something simple.

For example, Crypto.com lets users buy preset baskets containing multiple cryptocurrencies in a single transaction. The baskets cover themes such as AI, GameFi, memes, and other sectors. Users can also create custom baskets.

Crypto.com also offers optional automatic rebalancing. Users can choose weekly, bi-weekly, or monthly rebalancing for eligible baskets.

The big difference is that a crypto basket isn't the same thing as an investment fund.

You're buying the underlying cryptocurrencies through the platform rather than buying shares in a regulated fund that tracks an index.

That can make baskets more flexible, but it also means you need to look at how the platform holds and manages the assets.

Automated crypto portfolios

Most crypto exchanges offer automated portfolios that allocate money across several cryptocurrencies according to a predefined strategy.

These can look similar to a crypto index fund from the user's perspective, but the underlying structure can be very different. Some actively rebalance based on market conditions rather than simply tracking an index. Others use preset allocations.

Copy trading

Copy trading is another option, although it's a very different approach. Instead of tracking an index, your portfolio follows the trades of another investor.

This can give you exposure to several cryptocurrencies without selecting each trade yourself, but you're taking on the strategy and risk of the trader you're copying.

Build your own crypto portfolio

You can also simply create your own basket. For example, you might decide to split your crypto allocation between BTC, ETH, SOL, and a few other assets.

This gives you complete control over the allocation. You can also rebalance whenever you want. The downside is that you're responsible for everything. You need to research the assets, place the trades, and decide when to rebalance.

Don’t forget the tax bill…

However you invest in crypto, your profits are taxable. Learn more in our crypto tax guides, or sign up for Koinly for free to calculate your crypto taxes automatically.