Photographer: Michael Short/Bloomberg
Only U.S. accredited investors are eligible to buy in
Firm is developing other funds geared toward retail traders
The top U.S. marketplace for buying and selling digital coins is offering investors another way to get in on the cryptocurrency craze.
Coinbase Inc. said Tuesday that it’s rolling out the Coinbase Index Fund. The investment vehicle will track the performance of the four tokens that currently trade on the San Francisco-based company’s GDAX exchange to provide customers an easier way to gain wider exposure to the estimated $450 billion market.
“We are noticing people coming to the space for the first time, being excited about cryptocurrencies, but not knowing where to start, so we’re excited to give people the ability to get broad exposure to the entire asset class rather than having to select individual investments.” said Reuben Bramanathan, a product manager at Coinbase. “We’re seeing strong demand from institutional and high-net-worth individuals.”
The fund will be weighted by market value and follow Coinbase Index, a newly created benchmark of Bitcoin, Bitcoin Cash, Ether and Litecoin -- the digital coins currently available on the exchange. If Coinbase decides to list new assets, they will automatically be added to the index, which will be rebalanced annually.
Customers will be able to invest once per month and withdraw once every quarter, but will not be able to trade shares in the passively managed fund, which won’t be listed on an exchange, Bramanathan said.
Coinbase wasn’t the first to come up with the idea. San Francisco-based Bitwise Asset Management said Oct. 2 that it was starting a fund that would follow a basket of the biggest digital currencies. Four days later, Fundstrat Global Advisors -- the research boutique that counts Bitcoin bull Thomas Lee as its co-founder -- announced plans to create crypto indexes to track the performance of some 600 digital tokens.
In Coinbase’s case, only accredited U.S. investors will be eligible to buy into the fund initially because catering to less experienced individuals poses more regulatory challenges, Bramanathan said. Investors must have a net worth of $1 million or make $200,000 per year. They will also be required to invest a minimum of $10,000, either in U.S. dollars or one of the cryptocurrencies on the exchange. Coinbase created a new business unit, Coinbase Asset Management, to run the investment vehicle, which it hopes to launch in the coming months.
The closely held firm is in the process of developing other funds geared toward retail investors, meaning Coinbase may have to file with the U.S. Securities and Exchange Commission, Bramanathan said.
“When people think about a retail index fund, they’re talking about an ETF, and that’s obviously a long process to launch,” he said. “Our objective here is to get to a position where we do launch a fund that’s available to retail, but given the regulatory hurdles, we wanted to offer something to institutional and accredited to begin with.”
— With assistance by Camila Russo