There are just a handful of organizations working in the cryptocurrency index fund space. Bitwise and Index Coop are two of the earliest entrants. This post will take a look at how these two organizations and their respective products stack up against each other.
The Index Coop is a community-led decentralized autonomous organization (DAO) focused on enabling the creation and adoption of on-chain crypto index products for both retail investors, institutions, and investment professionals. Bitwise is an asset management company that offers crypto index funds targeted at investment professionals, institutional investors, and high-net-worth individuals.
The Index Coop offers products that are crypto-native. They are structured as on-chain indexes, powered by Set Protocol, and come in the form of ERC-20 tokens that represent the underlying holdings. By their very nature, they are liquid, cost-effective, and tax-efficient.
Bitwise products are structured as statutory trusts. These trusts are designed for accredited investors, but some of these trusts are also publically available via over-the-counter (OTC) markets. However, their OTC price can come with a significant tracking error to the value of the assets in the fund. Bitwise acknowledges this within the disclosure sections of many of their funds.
Below is a chart showing how the OTC market price can deviate from the net asset value (NAV) of the fund.
When the market price is greater than NAV, a premium exists. That results in you “overpaying” for the assets in the fund. For example, purchasing one share on September 3 for $61.00 would have given you ownership of $54.87 worth of underlying assets at the time. When the opposite occurs, and the market price is less than NAV, a discount exists. These premiums and discounts add another variable to the mix in the overall performance of the fund.
Generally, statutory trusts are a sub-optimal structure for crypto products. That’s why many asset managers have plans to transition their trust products to ETFs if/when regulatory approval is granted. But in the meantime, statutory trusts are used for crypto products in the traditional financial world to work around the regulatory ambiguity.
A well-designed and efficient index structure should result in the product being priced as close as possible to a 1:1 ratio with the underlying assets. That’s one advantage on-chain indexes have over statutory trust structured products.
Asset management fees may seem small, but they can have a significant impact on your portfolio over the long term.
Fees for Index Coop products are collected as streaming fees. Streaming fees work via inflation meaning the token supply is increased and dispersed to the appropriate parties. Fees for Bitwise products are collected in the traditional manner. Daily adjustments are made to the net asset value (NAV) of the fund.
The fees rates charged by Index Coop and Bitwise also differ significantly. Below are the fees for a comparable DeFi product from each:
Comparing the other products from Index Coop and Bitwise is more difficult and can’t be done like-for-like because the offerings vary in their purpose and complexity. Nonetheless, here are the fees for the other products:
Just doing a simple average for all the products, the average fee for the Index Coop products is 1.17%. The average fee for the Bitwise products is 1.99%.
Index Coop products are open to all investors. You could be a retail investor investing your hard-earned money, an institutional investor looking to get crypto exposure, or a DAO diversifying your treasury holdings. All you need is an internet connection and the funds to invest. Fundamentally, the Index Coop products are aligned with a key core value of crypto and DeFi, openness and accessibility for all.
Bitwise products are largely designed for accredited investors, meaning you must satisfy one of the following requirements to invest directly in the trusts:
- Earned income exceeding $200,000 ($300,000 if combined with a spouse) for each of the last two years — and the ability to credibly demonstrate the ability to maintain that income threshold during the current year.
- Net worth exceeding $1,000,000, excluding the value of your primary residence.
- Financial license certifications (series 7, 65, or 82).
Institutions and typical investors might initially be more comfortable with Bitwise products because they are familiar and exist within the traditional finance system. And while there is a learning curve to getting started with Index Coop products, they ultimately are in contention for the best products in crypto for the reasons laid out above. Additionally, the Index Coop DAO is at your disposal for questions you may have.
Both Index Coop and Bitwise offer crypto index products. That said, investors should carefully consider the product structure, fees, and investor requirements when determining which is the correct product for their portfolio.
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.