Does crypto offer higher average returns than the stock market? – Wired PR Lifestyle Story

An index ETF tracks the performance of a segment in a financial market. It consists of a portfolio of shares and allows investors to diversify their holdings. In theory, this reduces market risk.

Future profits are not dependent on the performance of any company, but on the entire market segment.

In early 2021, he became a Twitter user @TenIndex he followed this principle when investing in cryptocurrencies. On January 1, he invested $ 100 in each of the top ten cryptocurrencies in the trade at the time. He then left the investment untouched for a whole year.

The idea behind this experiment was to see if investing passively in cryptocurrencies would pay off more than the stock market.

What happened to the investment?

At the end of 2021, TenIndex recorded a net profit of 292 percent on its initial investment. His $ 1,000 wallet was now worth $ 3,921.

Nine of the coins he invested also recorded net profits individually. Tether (USDT) was the only weirdo in the group.

Being a stable currency, Tether’s value is pegged to the U.S. dollar. So his goal is to get $ 1 worth of each coin.

The biggest gain in TenIndex’s portfolio was Binance Coin, which was worth more than 1,200 percent. Ethereum, Ripple, Polkadot and Cardano also recorded three-percent profit gains.

Litecoin and Bitcoin Cash (the derivative of Bitcoin) were the worst performers, recording gains of only 16 and 26 percent, respectively.

How does it compare to index-listed ETFs in Singapore?

The Straits Times Index (STI) ETF is often recommended as a safe and smart investment for Singapore’s novice investors. It tracks the performance of 30 companies listed on the Singapore Stock Exchange, including Singapore Airlines, ComfortDelGro, DBS Bank and Singtel.

In 2021, the value of the STI ETF rose by about 10.3 percent. This means that an investment of $ 1,000 at the beginning of the year would cost $ 1,103 at the end.

It is also worth noting that the STI is a weighted ETF index. Investments are not evenly distributed across 30 index companies. In fact, DBS, OCBC and UOB make up almost 44 percent of the weight.

Most other ETFs listed on SGX indices in other markets around the world.

Last year, one of the best performing ETFs was the SDPR S & P500. It tracks the S & P500, which is a measure of the top 500 publicly traded companies on the U.S. stock market.

An investment of $ 1,000 in this ETF would become about $ 1,265 by 2021. In other words, a return of about 26.5 percent.

This return was well above the S & P500 standard. Over the last 50 years, the value of the index has grown by an average of 10.83 percent.

Does this mean that cryptocurrency is the way to go?

It is not necessary. It simply means that the crypto market performed very well in 2021.

After all, investing in one of the top ten cryptocurrencies (in addition to Tether) would guarantee profits throughout the year.

For a more convincing argument, it is important to analyze a larger sample of historical data. Fortunately, TenIndex has been investing $ 100 a year in the top 10 cryptocurrencies (at the time) since 2018.

In 2018, the value of its portfolio fell from $ 1,000 to $ 151 – a 84 percent loss compared to the S & P500’s 6.2 percent loss. It is worth noting, however, that entering the crypto market in early 2018 meant buying the highest of all time.

In 2019, TenIndex’s portfolio had a two percent gain and was valued at $ 1,017 at the end of the year. The S&P500 rose 29 percent that year.

Finally, in 2020, TenIndex’s portfolio went from $ 1,000 to $ 2,394.70, an increase of 139.47 percent from the S&P500’s 16 percent.

How risky is it to invest in a cryptocurrency index fund?

Cryptocurrency can be extremely volatile, but reading these results at face value may not tell the whole truth.

Although TenIndex’s 2018 portfolio was valued at $ 151 at the end of the year, its value rose $ 1,341 by the end of 2021. The 2019 portfolio would be worth about $ 6,000 today as well.

This experiment does not necessarily prove that investing in cryptocurrencies is a safe bet, even as an index fund. However, the cryptocurrency portfolio offers less risky avenues.

For example, Tether aside, five of the top 10 cryptocurrencies in 2018 were still in the top 10 in 2021. Four of them – Bitcoin, Ethereum, Ripple and Bitcoin Cash – never left the top 10 for four years.

Investing in projects that have proven to survive in this volatile space can be one of the strategies for a safer portfolio.

For those interested in learning more, TenIndex publishes monthly updates on all of its index portfolios on its site. Blog. While there is no need to draw objective conclusions here, these findings may help to make a wiser investment strategy for both new and existing holders.

Featured Image Credit: CoinGeek