Coinbase creates an index fund

Today, Coinbase announced a new index fund tracking digital assets listed on the Coinbase exchange, GDAX. It is limited to US accredited investors only, which does reduce the number of people who are able to participate.

Judging from Coinbase index info here, the initial breakdown will be as follows:

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Bright side

So what does this mean for us? On the bright side, this move will increase the availability of investing in bitcoin. There will be many richer people who might have a passing interest in getting some small level of exposure to crypto/digital assets, and don’t want to spend the time learning to hold their own private keys etc. This fund is probably easier for them to buy – so it does mean more money can flow into bitcoin.

Down side

On the down side, it is pushing what I believe to be an incorrect narrative. This idea that “we should diversify across crypto assets” strikes me as a category error. It is treating Ethereum, Bitcoin Cash (BCash), and Litecoin like they are a good way to diversify instead of holding one sound money, Bitcoin.

What happens in practice is:

  • They’re not really that uncorrelated to each other.
  • All altcoins live in the wake of Bitcoin and basically ride its coat tails.
  • There is an opportunity cost to holding more ETH, BCH and LTC: You could have otherwise held more BTC.

That said, I understand that Coinbase are not a company operating under a bitcoin maximalist ethos.

Summary

On net, this is good for bitcoin in that it helps draw in more investors. But it does unfortunately push a belief or narrative that I disagree with, and I believe it will ultimately be harmful if this narrative is kept alive for too long. In the end, people will be driven by their own greed and price signals towards bitcoin and away from the others. The cream will rise to the top eventually.

For the meantime, it will be: Play stupid games, win stupid prizes.

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