What Are Crypto Index Funds? Diversifying Your Investment

Direct buying and selling of crypto assets remains the most popular investment in the crypto industry; however, such a direct approach isn't suitable for everyone, and crypto index funds come into play. Through crypto index investing, you can obtain a diversified crypto portfolio. But first, what are crypto index funds? How do they work, and what types are there? And what are the best crypto index funds for 2025?

What Are Crypto Index Funds?

First, let's define that crypto index funds aren't a specific, final product but the methodological foundation for implementing them. This foundation is a rule-oriented market access logic and an index methodology: they define which digital assets are eligible, how to weight them, and when and under what rules to review the composition.

Especially, the index methodology makes every element clear to the investor in advance. First, it sets the asset universe by market capitalization, liquidity, custody availability, and listings on selected venues. Then it fixes inclusion and exclusion filters, the price calculation scheme, and controls for quote anomalies across exchanges. Also, it separately describes the treatment of events specific to the crypto market, such as token migrations and redenominations. Finally, the methodology sets the rebalance frequency and procedure, the weighting model, and concentration limits, so that a single asset doesn't absorb all the risk.

Thus, implementing crypto index funds comes down to transparently following the published rules. Rebalances bring the composition and weights to target; understandable factors explain deviations: fees, execution slippage, cash balances, and the availability of individual assets. The index methodology, not the manager's discretion, determines results, while benchmark tracking evaluates replication quality, not just guessing the next market move.

Crypto ETF vs Index Fund

If crypto index funds are core mechanics of following a published index as a set of rules for inclusion, weighting, rebalancing, and event handling, then crypto ETFs and crypto mutual funds are access wrappers in which this index methodology can be implemented in one way or another.

More specifically, a crypto ETF has two key courses – the primary and the secondary market. In the primary market, authorized participants create and redeem fund shares by delivering either the basket of underlying assets (in-kind) or cash. This syncs the fund's portfolio with what is in the index and forms the basis for arbitrage and liquidity. On the secondary market, these shares trade throughout the day; the exchange price fluctuates around iNAV – the real-time indicative value of the basket. By the close, it converges to NAV – the official net asset value calculated by an established methodology at the end of the day. 

Important that arbitrage smooths the premium or discount to NAV but does not eliminate them entirely: spreads remain, cash balances before rebalances, execution costs, and quote dispersion across exchanges.

By the way, learn what crypto ETFs are and how they work, how spot crypto ETFs and futures crypto ETFs differ, and more in our comprehensive guide, Cryptocurrency ETFs Explained.

A mutual fund operates in a single execution circuit – subscription and redemption at NAV at set cut-offs. Investor orders are netted; the manager executes the net inflow/outflow and brings the portfolio to target weights per the index methodology. There is no intraday share price: calculation and trades follow the fund's schedule. Tracking to the benchmark is shaped by technical factors: the time lag between order cut-off and actual execution, cash balances between order flows and rebalances, replication costs, and the availability of individual assets in the applied infrastructure. 

Again, it isn't perfect. In stress regimes, volatility concentrates at the moment NAV is calculated, and the uncertainty for the investor shifts to the time lag until the next cut-off and execution. In essence, this is the same benchmarking, but with a predictable trade schedule instead of exchange microstructure and arbitrage.

How to Invest in Crypto Index Funds

Investing through crypto index investing doesn't start with a product name; it starts with a clear definition of the desired exposure and its verification against the published methodology, plus choosing an index logic whose behavioral profile fits your task, and only then choosing a convenient access wrapper.

First, focus on the exposure type. A broad-market basket reproduces the dynamics of an entire segment and structurally concentrates the contribution of the largest assets; thanks to wide coverage and a stable composition, it generally requires fewer updates and offers a more predictable profile of deviations from the benchmark. A thematic basket, including Bitcoin and Ethereum index funds, fixes targeted exposure to a chosen subset of assets; the logic is transparent, but concentration and factor risk are higher, and behavior depends more on the dynamics of the dominant components. The choice between them is a choice between broad market representativeness and a targeted tilt in return and risk.

Next, evaluate the specific index methodology, which in turn forms the core of your crypto index strategy. There are three key parameters:

• The universe of eligible assets and its practical executability (price sources, quote aggregation, outlier filters, base currency, as well as eligibility conditions such as custody, listings on specified venues, and minimum liquidity thresholds).

• The weighting scheme and mechanisms for managing concentration risk (weight type, limits on a single asset's share, inclusion/exclusion thresholds).

• The frequency and regulations for bringing weights to target (rebalance calendar, rules for bringing to target, treatment of migrations, and redenominations).

In general, several established approaches exist that combine these parameters in varying proportions:

• Market-cap weighted, where weights are proportional to capitalization, preserving the dominance of large assets and usually requiring less turnover at reconstruction.

• Equal-weighted, where components have equal shares, which reallocates contribution toward the middle and raises turnover, increasing the share of less liquid components – controls liquidity thresholds and execution costs.

• Capped, where caps limit leaders' weights and add cap-induced turnover on review dates when leaders exceed the limit and their weight is returned to the cap.

Only after that should you consider the access wrapper. For example, if exchange liquidity and the ability to control trade timing intraday are critical, your likely choice is a crypto ETF with its primary/secondary circuits and arbitrage around iNAV and NAV. If scheduled dealing and NAV-based execution matter more, a crypto mutual fund will likely fit better. The wrapper changes the execution regime and cost profile, but not the benchmark idea chosen in the previous step.

Risks and Limitations of the Index Approach

Although crypto index funds aim to diversify risk, there are market and structural risks:

• High intra-segment correlation may lead to drawdowns in a broad-market basket synchronously, when many assets fall at the same time. This means diversification within a single segment reduces single-token risk but doesn't remove overall market risk for the entire basket.

• Capitalization concentration may sustain a disproportionate contribution from the largest assets even under weight limits, so one or two leaders often determine most of the outcome. In practice, this may lead to the index trajectory largely tracking the dynamics of dominant components rather than the basket's average profile.

• Rebalances may create event risk: turnover rises in review windows, and the likelihood of short-term divergences from the benchmark in returns and composition increases due to bringing weights to target. Sources of these deviations may include execution costs, slippage, and the need to technically bring actual weights to the rule-defined targets.

• In capped schemes, cap-induced turnover may arise when excess weights return to limits, which may increase turnover and short-term deviations. On review dates, cap rules may force cuts to leaders' weights, and the underweight may be redistributed across other components.

• Thematic indexes may add a risk factor for the chosen cluster and may increase sensitivity to topic-specific news and drivers. As a result, the index may become more responsive to events in the selected theme even when the broad market is stable.

• Metrics of deviations from the index include tracking difference, the average return gap versus the benchmark over a period, and tracking error, the dispersion of that gap. These metrics may be affected by fees, turnover at rebalances, cash balances, and the executability of components. A positive or negative tracking difference may indicate a systematic bias against or in favor of the investor, and the magnitude of tracking error may reflect replication stability over time.

In addition, operational risks may arise:

• For crypto ETFs, intraday trading, exchange spreads, the quality of arbitrage between the share and the underlying basket, and possible quote desynchronization may drive deviations; a temporary premium or discount to NAV may persist until arbitrage restores. iNAV may serve as an intraday guide, but it doesn't remove microstructure risks, and component liquidity and order book depth remain critical.

• In stress regimes, for ETFs, the premium or discount to NAV may appear here and now until arbitrage restores; for mutual funds, volatility may concentrate at the NAV calculation moment, and uncertainty may shift to the lag before execution. The speed of normalization may depend on component liquidity and the availability of execution infrastructure.

• For crypto mutual funds, dealing at NAV at set cut-offs, netting of inflows and outflows, and discipline in bringing weights to target may interact with a time lag between calculation and actual execution. During this lag, the portfolio may temporarily deviate from target weights and market structure, especially with significant inflows or outflows.

Best Crypto Index Funds 2025

Today, more and more crypto indexes with very different exposures are emerging, and of course, crypto ETFs take most of the attention, with a top list you can review here. However, we now consider indexes with broader exposure, the top crypto index funds comparison.

WisdomTree Physical CoinDesk 20

• ISIN/WKN/ticker. GB00BN474G19/A4AKVG/WCRP.

• Index. CoinDesk 20; methodology owner CoinDesk Indices; administration and calculation CC Data Limited (FCA); 20 components; base date 4 Oct 2022; launch date 12 Jan 2024.

• Index eligibility universe and exclusions. Top-250 by market capitalization with reference pricing; memecoins, privacy tokens, wrapped/pegged/staked assets, and gas tokens excluded; listing and liquidity requirements – USD/USDC pairs on at least 3 exchanges, listing ≥90 days, availability to U.S. clients, threshold trading volumes.

• Weighting scheme and concentration limits. Modified market cap; cap 30% on the largest component and 20% on each of the others.

• Rebalance calendar and rules. Quarterly; effective date – last business day of Jan/Apr/Jul/Oct at 4:00 p.m. ET; announcement 4 weeks prior; weighting reference date 7 calendar days prior; reconstitution reference date 2 business days prior to announcement.

• Policy for crypto-specific events. Off-cycle changes in extraordinary circumstances; when a component is removed, its weight is redistributed proportionally without re-capping.

• Structure and investment profile. Legal form – ETN; replication – Physical (Physically backed); distribution policy – Accumulating; risk strategy – Long-only.

• Jurisdiction and classification. Provider – WisdomTree; domicile – Jersey; UCITS compliance – No; Sustainability – No.

• Currency, costs, and scale. Fund currency – USD; currency risk – Currency unhedged; TER – 0.70% p.a.; AuM – 118,000,000 EUR.

• NAV/iNAV and pricing. The index is calculated every 5 seconds; pricing on CCData Blended Prices; USD and USDC pairs allowed with USDC to USD conversion by reference rate.

• Performance. 1M +2.78%; 3M +33.60%; 6M +59.68%; Since inception +21.94%.

• Risk metrics. Maximum drawdown since inception −36.81%.

• Tracking to the benchmark. Tracking difference and tracking error are evaluated at the product level versus the index.

• Listings. Euronext Amsterdam – USD –WCRP; Euronext Paris – EUR – WCRX; SIX Swiss Exchange – USD – WCRP; Xetra – EUR – WCRP; SIX Swiss Exchange – CHF – WCRP.

• Key product risks. Market and concentration risks of the basket; event-driven deviations in rebalance windows; exchange spreads and microstructure.

Hashdex Nasdaq Crypto Index Europe ETP

• ISIN/WKN/ticker. CH1184151731/A3GY1V/HDX1.

• Index. Index. Nasdaq Crypto Index (NCI); methodology owner Nasdaq; administration and calculation CF Benchmarks Limited; base date 2 Feb 2021; launch date 2 Feb 2021.

• Index eligibility universe and exclusions. Listing on ≥2 Core Exchanges; at least one Core Custodian; free-floating pricing without pegged assets; minimum trading volumes; eligibility for ETP listing on SIX and Xetra; addition at ≥0.5% of total cap, removal at <0.25%.

• Weighting scheme and concentration limits. Weighting by free float market capitalization.

• Rebalance calendar and rules. Quarterly, on the first business day of March, June, September, and December; announcements 15 calendar days prior (reconstitution) and 4 business days prior (rebalance).

• Policy for crypto-specific events. Fork and airdrop assets are reviewed for eligibility; if the criteria are lost, the asset is removed by the Index Management Committee decision.

• Structure and investment profile. Legal form – ETN; replication – Physical (fully collateralized); distribution policy – Accumulating; risk strategy – Long-only.

• Jurisdiction and classification. Provider – Hashdex AG; domicile – Switzerland; UCITS compliance – No.

• Currency, costs, and scale. Fund currency – USD; currency risk – Currency unhedged; TER – 1.00% p.a.; AuM – 312,001,637.79 USD.

• NAV/iNAV and pricing. NAV per Unit – 86.63 USD; daily NAV publication; the index is calculated in real time and as a daily settlement value.

• Performance. 1M −3.13%; 3M +16.85%; 6M +39.25%; Since inception +111.63%.

• Risk metrics. Maximum drawdown since inception −60.40%.

• Tracking to the benchmark. Tracking difference and tracking error are evaluated at the product level versus NCI.

• Listings. SIX Swiss Exchange – USD – HASH SW; SIX Swiss Exchange – EUR – HASHEUR SW; SIX Swiss Exchange – CHF – HASHCHF SW; SIX Swiss Exchange – GBP – HASHGBP SW; Xetra – EUR – HDX1 GY; Euronext Paris – EUR – HASH FP; Euronext Amsterdam – USD – HASH NA; Gettex – EUR – HDX1.

• Portfolio replication and operations. Fully physical collateralization; Authorized Participants – Flow Traders, DRW, Jane Street, GHCO, Makor; Market Makers – Flow Traders, GHCO.

• Custody and asset operations. Custodians – Coinbase, BitGo, Zodia; collateral agent – The Law Debenture Trust Corporation; administrator – Catalyst Fund Administration; auditor – Grant Thornton; legal counsel – Homburger; global paying agent – Quirin Privatbank; local paying agent – ISP Securities AG; Passporting – AT, BE, BG, HR, CY, CZ, DK, EE, FI, FR, DE, GR, HU, IS, IE, IT, LV, LI, LT, LU, MT, NL, NO, PL, PT, RO, SK, SE, ES.

• Key product risks. Market and concentration risks of a multi-asset basket; event-driven deviations around quarterly reviews; spreads and potential premium/discount to NAV in stress regimes; dependence of liquidity on Authorized Participants' activity.

21Shares Crypto Basket 10 Core ETP

• ISIN/WKN/ticker. CH1135202179/A3GUMU/21HX.

• Index. Index. Vinter 21Shares Crypto Basket 10 Index; methodology owner Vinter; administration and calculation Vinter; base date 1 Jan 2021; launch date 29 Sep 2021; calculation at 16:00 London; publication after 16:10.

• Index eligibility universe and exclusions. Top-10 by 90-day average market capitalization; stablecoins excluded; liquidity and infrastructure requirements, including supported custodians, regulated exchanges, and active market making; daily turnover versus USD/stablecoins ≥ 5 million USD.

• Weighting scheme and concentration limits. Market-cap weighting; no capping applied.

• Rebalance calendar and rules. Quarterly on the last business day of the month, with application from the next day's open; weight recomputation at closing prices.

• Policy for crypto-specific events. Composition and component count changes by the Index Committee decision under the methodology; temporary deviation from the target number of components is allowed.

• Structure and investment profile. Legal form – ETN; replication – Physical (fully collateralized); distribution policy – Accumulating; risk strategy – Long-only.

• Jurisdiction and classification. Provider – 21Shares AG; domicile – Switzerland; UCITS compliance – No.

• Currency, costs, and scale. Fund currency – USD; currency risk – Currency unhedged; TER – 0.49% p.a.; AuM – 34,889,539.02 USD.

• NAV/iNAV and pricing. NAV per Unit – 37.72 USD; Daily NAV publication.

• Performance. YTD +11.13%; 1M −1.58%; 3M +16.53%; 6M +42.73%; Since inception +99.07%.

• Risk metrics. Maximum drawdown since inception −75.75%.

• Tracking to the benchmark. Tracking difference and tracking error are evaluated at the product level versus the index.

• Listings. SIX Swiss Exchange – USD – HODLX; SIX Swiss Exchange – CHF – HODLXCHF; SIX Swiss Exchange – GBP – HODLXGBP; Xetra – EUR – 21HX; Euronext Amsterdam – USD – HODLX NA; Euronext Paris – EUR – HODLX FP.

• Portfolio replication and operations. 100% physically backed; Authorized Participants – Bluefin Europe LLP, DRW Holdings, Flow Traders, GHCO, Jane Street, Lang & Schwarz, Nyenburgh, Virtu Financial Ireland Limited; Market Makers – Flow Traders, GHCO; Collateral Agent – The Law Debenture Trust Corporation plc.

• Custody and asset operations. Custodian – Copper Technologies (Switzerland) AG; cold storage.

• Key product risks. Market and concentration risks of a multi-crypto basket; event-driven deviations around quarterly reviews; exchange spreads and potential premium/discount to NAV in stress regimes; dependence of liquidity on AP/market-maker activity.

Bitwise MSCI Digital Assets Select 20 ETP

• ISIN/WKN/ticker. DE000A3G3ZL3/A3G3ZL/DA20.

• Index. Index. MSCI Global Digital Assets Select Top 20 Capped Index; methodology owner MSCI; administration and calculation MSCI; 20 components; base date 29 Nov 2019; launch date 1 Mar 2023.

• Index eligibility universe and exclusions. Top-20 investable digital assets per MSCI's methodology; stablecoins, exchange tokens, and memecoins excluded.

• Weighting scheme and concentration limits. Modified market cap with a 30% limit on a single component.

• Rebalance calendar and rules. Quarterly.

• Policy for crypto-specific events. Forks and special corporate-action-like events are handled per MSCI's index methodology.

• Structure and investment profile. Legal form – ETN; replication – Physical (physically allocated, 100% fully backed); distribution policy – Accumulating; risk strategy – Long-only.

• Jurisdiction and classification. Provider – Bitwise Europe GmbH; domicile – Germany; UCITS compliance – No.

• Currency, costs, and scale. Fund currency – USD; currency risk – Currency unhedged; TER – 1.49% p.a.; AuM – 24,000,000.00 USD.

• NAV/iNAV and pricing. NAV per Unit 182.29 USD; Daily NAV publication; NAV calculated at 16:00 CET.

• Performance. 1M 3.38%; 3M 38.01%; 6M 76.96%; 1Y 123.52%; Since inception 226.85%; YTD 28.01%.

• Risk metrics. Maximum drawdown since inception −48.51%.

• Tracking to the benchmark. Tracking difference and tracking error are evaluated at the product level versus the index.

• Listings. Deutsche Börse Xetra – EUR – DA20; Deutsche Börse Xetra – USD – DA21; Euronext Paris – EUR – DA20 FP; SIX Swiss Exchange – CHF – DA20 SW.

• Portfolio replication and operations. Fully physical collateralization; proof of holdings published weekly by an independent administrator; when constraints arise, individual small components may be temporarily not held and their weight redistributed proportionally across remaining components.

• Custody and asset operations. Custodian – Coinbase Custody; cold storage; independent trustee; independent administrator.

• Key product risks. Digital asset market volatility, liquidity, and spread risks; custody and regulatory risks; market risk, and the issuer risk of a debt security.

CoinShares Physical Top10 Crypto Market ETP

• ISIN/WKN/ticker. JE00BPRDNL86/A3G4FD/CTEN.

• Index. CoinShares-Compass Top 10 Crypto Market Index; methodology owner Compass Financial Technologies; administration and calculation Compass Financial Technologies; 10 components; base date 15 Jan 2016; launch date 8 Mar 2023.

• Index eligibility universe and exclusions. Index eligibility universe and exclusions. Trading in USD; trading history ≥ 3 months; listing on at least one Eligible Exchange; liquid market on a reputable exchange; eligibility for Xetra listing; monthly eligibility review; exclusions include insufficiently collateralized stablecoins, privacy coins, and meme coins; Eligible Exchanges as defined by the methodology.

• Weighting scheme and concentration limits. Market capitalization based on a 30-day average circulating supply; 35% cap on a single component.

• Rebalance calendar and rules. Quarterly on the third Friday of January, April, July, and October; final weights set 2 business days before the rebalance date; component prices – CCRI fixing at 16:00 London.

• Policy for crypto-specific events. Procedures for market disruption and exceptional circumstances with possible deferrals or exceptions by Steering Committee decision; separate rules for hard forks and airdrops.

• Structure and investment profile. Legal form – ETN; replication – Physical (fully collateralized); distribution policy – Accumulating; risk strategy – Long-only.

• Jurisdiction and classification. Provider – CoinShares; domicile – Jersey; UCITS compliance – No.

• Currency, costs, and scale. Fund currency – USD; currency risk – Currency unhedged; TER – 0.00% p.a.; AuM – 9,000,000.00 EUR.

• NAV/iNAV and pricing. Daily NAV publication; index prices – CCRI close at 16:00 London.

• Performance. YTD +19.05%; 1M +1.59%; 3M +35.57%; 6M +68.21%; 1Y +119.91%; Since inception +259.35%.

• Risk metrics. Volatility 1Y 56.93%; Maximum drawdown since inception −47.06%.

• Tracking to the benchmark. Tracking difference and tracking error are evaluated at the product level versus the index.

• Listings. Xetra – EUR – CTEN; Xetra – USD – CTEN; gettex – EUR – CTEN.

• Portfolio replication and operations. Fully physical collateralization.

• Custody and asset operations. Custodian – Komainu Digital; administrator – JTC Fund Solutions (Jersey) Limited; Swiss paying agent – State Street Bank International GmbH, Zurich Branch; auditor – Baker Tilly Channel Islands Limited.

• Key product risks. Market and concentration risks of the basket; event-driven deviations around rebalance dates; exchange spreads and potential premium or discount to NAV in stress regimes.

Conclusion

Crypto index investing is justifiably one of the more balanced ways to obtain a diversified crypto portfolio, but like any other instrument, it comes with a set of capabilities, features, and risks. You now know them and have everything you need to develop your individual crypto index strategy and choose the most suitable crypto index offerings available in the market.

However, always remember that they only help reduce risk, not eliminate it, and they require ongoing review as you update your investment objectives and trading strategies. Stay tuned for the latest opportunities in the crypto and updates in the blockchain industry to make your analysis more grounded and your trading more productive.