Coin Metrics plans to marry smart beta and crypto as part of its recent acquisition of Bletchley Indexes, and the introduction could further drive adoption of so-called smart-beta indexing in bitcoin markets.
Smart-beta index funds seek to mix the best of passive and active strategies, and are becoming more popular amongst crypto fund providers. In traditional markets, investors can tap into the market via passive or active vehicles. Passive investing, championed by the likes of Warren Buffett and the late Jack Bogle, aim to get broad exposure of the market, whereas active investing involves the picking of individual stocks for an outsized return.
On the whole, the markets have seen a massive shift from active to passive, with hedge funds (glorified stock pickers) seeing about $15 billion of outflows in Q1 2019, according to Investment Week. With smart-beta strategies, however, index providers include certain stocks (or cryptos) based on non-market cap metrics, which will then sit — and hopefully grow — for the long-term.
Sources say smart-beta strategies could be appealing in the nascent market for crypto. The volatility of the market, in which coins are prone to spring up and die, make a long position across the market based on strictly market-cap less tenable.Smart-beta exposure can help weed out weak players, according to sources.
“In new emerging, inefficient asset classes, passive is not usually that effective, and active can work,” said CEO of Blockforce Eric Evans.
In the coming months, Coin Metrics will rebrand Bletchley Indexes as Coin Metrics Bletchley Indexes (CMBI), according to a release. The updated index will get more than a name change, since CMBI plans to use Coin Metrics’ on-chain and market data to expand its number of indexes past Bletchley’s original 13, including smart-beta indexes.
Indeed, other hedge funds with which The Block spoke to are exploring offering smart-beta exposure.
“I think it can and could and likely will make a lot of sense in crypto,” one fund manager said.