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Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, personal finance education, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, personal finance education, top-rated podcasts, and non-profit The Motley Fool Foundation.
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Key Points
Could index investing be coming for crypto?
On Oct. 7, S&P Global (SPGI 0.35%) launched its new S&P Digital Markets 50 Index. This is a new market cap-weighted index from S&P Dow Jones Indices that will track a basket of 50 cryptocurrencies and crypto-related stocks. In theory, it should give investors a quick snapshot look at how the broader crypto ecosystem is performing.
Some have already hailed the new index as a potential game-changer for the crypto and blockchain space. But is it really? Here’s what you need to know.
Image source: Getty Images.
S&P Dow Jones is best known for its S&P 500 Index (^GSPC 0.53%), which is arguably the most famous stock market index in the world. If investors want to know how “the market” is doing, they check out the S&P 500. If they want to track the market, they invest in exchange-traded funds (ETFs) and mutual funds that track the S&P 500.
So it’s understandable why the term “game-changer” is being thrown around right now. Arguably, for crypto investing to go fully mainstream, it needs to be as approachable and accessible as investing in stocks. That’s where the S&P Digital Markets 50 Index could play a big role, making it much easier for investors to track the crypto market.
That being said, it’s important to point out that there have been other attempts to create similar types of crypto indices. For example, in November 2024, Coinbase Global (COIN 1.72%) launched its Coinbase 50 Index.
Typically, though, any “crypto index” focuses either on cryptocurrencies or on crypto-related stocks, but not both of them at the same time. That’s what makes the new S&P crypto index so unique: It is truly a hybrid index, tracking both cryptocurrencies and crypto stocks.
The launch of the S&P Digital Markets 50 Index could lead to the introduction of new ETFs and mutual funds that track the crypto space. With just a single click, investors will be able to get immediate exposure to a broad basket of cryptocurrencies and crypto-related stocks.
That will make it much easier for investors to diversify their portfolios. And they won’t have to worry about using a variety of exchanges or trading platforms to get their exposure just right. It will soon be as easy to load up on crypto as it is to load up on the U.S. stock market.
Longer term, the introduction of the new S&P crypto index could entice a number of high-profile investment firms to embrace crypto for the first time. The obvious company here is Vanguard, the $10 trillion investment firm known for its popular index mutual funds and ETFs.
Until recently, Vanguard had ignored the crypto space. But in September, Vanguard hinted that it would be open to the idea of offering third-party crypto ETFs (such as spot Bitcoin ETFs) to brokerage clients who want exposure to crypto. So what if Vanguard decides to get involved with crypto? That’s when you’ll know that crypto has gone fully mainstream.
That being said, index investing might make sense for stocks, but it might not make sense for cryptocurrencies. There are hundreds of great companies to invest in, but are there hundreds of great cryptocurrencies to invest in?
For that reason, the new S&P Digital Markets Index will track only 15 cryptocurrencies. But even that number may be too large. Beyond Bitcoin (BTC -0.01%) and Ethereum (ETH -0.57%), the pickings are slim. Maybe you’d want to own some Solana (SOL -0.65%) and XRP (XRP -0.28%), both of which rank among the world’s top six cryptocurrencies by market cap.
But would you want to own meme coins as part of the index? Would you want to own highly speculative AI cryptos? Would you want to own tokens used in decentralized finance (DeFi)? If you look through the composition of the Coinbase 50 Index, it looks like a mixed bag. There are definitely some cryptocurrencies in there that would not have a lot of appeal for institutional investors.
Moreover, there is the risk of over-diversification. In other words, you might be loading up on a variety of 50 different digital assets, but not gaining any additional diversification beyond the first couple of names. Instead, you’ll simply be churning the portfolio as it rebalances from time to time, racking up additional costs, and spreading your portfolio too thin.
Keep in mind: Most crypto stocks, in one way or another, are highly correlated with the price of Bitcoin. As a result, you might not gain any real diversification from investing in a bigger basket of crypto companies. For example, consider Bitcoin mining companies and the new Bitcoin treasury companies. All of these are largely tied to the price of Bitcoin.
Nonetheless, the move by S&P Global is a positive one, and one that should be applauded. At the very least, it will give investors a quick, snapshot look at how “the crypto ecosystem” is doing. It remains to be seen, however, if any new crypto-themed ETFs or mutual funds will be worth investing in later.
Dominic Basulto is a contributing Motley Fool crypto analyst covering cryptocurrencies, digital assets, and crypto-related companies. Prior to The Motley Fool, Dominic was a technology and innovation journalist at The Washington Post and Fortune. He holds a bachelor’s degree in politics from Princeton University and an MBA in finance from Yale School of Management.
Dominic Basulto has positions in Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, S&P Global, Solana, and XRP. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
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