Most people with at least some experience in the investment world have some familiarity with index funds. These types of investments are becoming increasingly popular and can be fairly lucrative as long-term investments. In fact, index funds are starting to make their way into the cryptocurrency universe. With cryptocurrency investments being potentially volatile, index funds are seen as a trustworthy safety net in case things go awry.

Crypto investors tend to find a small number of coins they believe in and limit their investments to that small bundle. While this can pay off, there is also a certain amount of risk involved, as there can be massive swings in the value of those coins one way or another. Crypto markets are active 24/7, so monitoring the market to make sure the coins you invested in are moving in the right direction can be difficult to do.

It leaves the door open to heavy losses. However, investing in a few cryptocurrencies as part of an index can help eliminate some of this volatility and the risk that comes with it.

For some people, the cryptocurrency craze is akin to the “dot-com boom” of the 1990’s. To some people cryptos are the next dot-com, as outfits like Bitcoin or Ethereum bear some resemblance to the likes of Amazon and eBay back in the day, at least in terms of trade patterns that have emerged. Of course, cryptocurrencies are a bit more unpredictable than their dot-com brethren, so there’s no assurance they will follow the same bath.

Crypto coins are essentially valuable based on crowdsourcing. There are no brick-and-mortar locations to back them up, and so any projection of their future value is all theoretical as we figure out how blockchain technology fits into our society.

So, if you believe in the future of cryptocurrencies, how do you strategize your investments in order to maximize the highs and avoid the lows? The answer could very well be found in index funds. It allows a proper analyst to take care of the research and make any necessary adjustments, two things that are difficult to do with cryptocurrencies without some kind of guidance or expertise.

Another similarity between today’s cryptocurrencies and the dot-com companies of the past is the sudden downturn that followed an unexpected surge in their value. The price of Bitcoin fell from over $19,000 on December 17, 2017, to as low as $6,000 and change on February 6, 2018, less than two months later. With the dot-com craze, this drop came at a much slower pace between 2000 and 2002. However, given the inherent volatility of crypto assets, it shouldn’t be a surprise that the Bitcoin drop wasn’t quite as gradual.

It’s worth noting that an index would not have done much to prevent massive losses during that two-month period. This is because so many cryptocurrencies are so closely tied with Bitcoin. However, more and more cryptocurrencies will be able to distinguish themselves from the Bitcoin brand in the years to come, making it easier to diversify and making an index a more viable way of investing in crypto assets.

Of course, one should not merely assume that Bitcoin or any other cryptocurrency will end up like so many successful dot-com outfits. However, the similarities are impossible to ignore, and that’s important when considering the behavior of investors with a new technology that offers both excitement and opportunity. Remember, prices are ultimately driven by traders. Even if there is panic among traders that causes a downturn in price, having an index of crypto assets can be a good way of improving portfolio stability and avoiding massive losses if the crypto bubble were to burst.

According to Reuters, stocks in mutual funds or hedge funds that are being actively managed make up roughly 25% of the global equity market cap. From this, we can discern that investors value safety. They want their investments in the hands of experts who know what they’re doing and have a track record of success.

History tells us that indexes are the safest way to turn a profit. Some individual stocks may outperform them, such as Amazon or Netflix, but such stocks are rare and difficult to pick out before they hit it big. For the most part, investing in a stock index with a reliable company is a good investment over the long run.

Knowing this, it’s not a stretch to think this would be a good strategy in the crypto ecosystem. Index funds help investors to avoid the crazy leaps that individual alt-coins can make in one direction or the other. There will be fewer consequences for buying into a coin too late or not getting out soon enough.

At this point, there is still so much about cryptocurrencies that we don’t know and can’t project without any certainty. With this volatility and the need for constant monitoring, index funds are likely the best solution for getting into the cryptocurrency investment arena without the massive risk of being in an industry that could still go in any number of directions.

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