What is a Basket?
A crypto index fund, also known as a basket, is an investment vehicle that provides access to a diversified portfolio of digital assets such as cryptocurrencies. The idea behind a crypto index fund is that it allows investors to invest in a fund, which in turn invests the money into a specific index of cryptocurrencies. By doing this, investors can get exposure to a wide range of digital assets without having to buy each token in the fund individually.
An index fund is a financial product that provides investors with access to a basket of assets that represent a particular market or sector. Similarly, a crypto index fund is designed to give investors access to a diversified basket of digital currency assets.
It's important to note that, as of early 2022, a true crypto index fund does not yet exist in the United States. However, this is a growing trend in the world of digital assets and is likely to become more prevalent in the future as the industry continues to develop.
Popular Examples of a Basket
The Bitwise 10 large Capitalization Crypto basket, aims to offer investors exposure to the top 10 cryptocurrencies by capitalization.
The S&P 500 is a stock index fund tracking the stock performance of the 500 large companies listed on stock exchanges in the US.
Baskets started gaining prominence in 2018. Around this time, it became possible to group several different coins and offer a single separate token during trading. Users could list the token on an exchange platform and trade it as they would with standard cryptocurrencies.
A "basket" in cryptocurrency can be compared to a mixed fruit basket. Just as a mixed fruit basket might contain a variety of different types of fruit, a cryptocurrency basket might contain a variety of different types of coins and tokens. Just as a mixed fruit basket offers a diverse range of flavors and nutrients, a cryptocurrency basket offers a diverse range of investments, spreading risk across multiple assets and potentially reducing overall risk. Just as a mixed fruit basket might be customized to meet the preferences and dietary needs of its recipient, a cryptocurrency basket might be customized to meet the investment goals and risk tolerance of its investor. In short, a basket in cryptocurrency is a collection of different coins and tokens, offering a diverse range of investments and potentially reducing overall risk.