ExecutiveChronicles | Is Investing in a Single Coin or a Crypto Index the Superior Strategy? | Crypto is an exciting technology. Some feel certain it will take over the financial world at some point. That’s because we increasingly live in a digital world, and crypto transactions can occur there.
Some individuals also like crypto as an investment vehicle. They see how some investors have made millions by purchasing the right coin at the proper moment and picking the opportune time for selling it off. However, single-coin investment carries risk, and often more than the average investor likes.
We’ll talk about single-coin crypto investing and indexes in the following article. If one option doesn’t appeal, perhaps the other will.
What is a Crypto Index?
Investing in a crypto index over a single coin works like buying into a mutual fund or any other stock portfolio that a company creates and runs on your behalf. You’re purchasing many coins at once as a package. You will make money if the index goes up as a whole.
That mitigates some of the risks. You’re not putting all your money on a single coin, like backing just one horse at the track. You might feel better about that if you like crypto as an investment vehicle, but you don’t want to go all in on just one of the many options on the market today.
What About Single Coins?
You can also set up a crypto investment and put all your money into a single coin. You might pick one of the better-known ones, like Ethereum or Bitcoin. You may also go with a lesser-known coin.
This second option means buying a less-valued crypto form and hoping the value skyrockets. It’s like buying a penny stock. You might feel it will go up soon because of some market factor that most other investors overlook.
With single coins, your portfolio rises or falls with that single investment. That’s risky since the coin might lose value just as quickly as it gains it.
Still, if you guess right and that coin sees a popularity boost, you might double or triple your original investment if you sell it off at the right time. You might make even more money than that if you time your sell-off correctly.
How Much Risk Can You Accept?
Mutual funds and crypto coin indexes have built-in safeguards. If one coin or stock does poorly, the whole package doesn’t collapse. You won’t lose all your money at once. Besides, if a crypto index underperforms, the entity running it can adjust it. A company usually uses algorithms to make up crypto indexes, and those algorithms often perform better over time than individuals who pick single coins.
If you’re someone who plays it safer when investing, crypto indexes probably make sense for you. If you like walking on the wild side, or you think a single coin might do well for some reason, you may skip the indexes and put all your money into just one cryptocurrency form.