That is the entire point of an index. If you think that cryptocurrency is likely to do well in the future, but you don't know which ones will survive, if you buy them all (market-cap weighted), you'll get an average cryptocurrency return.

For the S&P, the index has performed well for decades, but many of the individual components have not. Roughly half of the constituents have been replaced since 1999: http://www.businessinsider.com/sp-500-index-constituent-turn...

And 87% of the companies present at the inception of the index have left the index: https://www.fool.com/investing/general/2015/11/22/3-things-y...

If you believe that crypto is doomed, buying an index is a bad idea. If you believe that the future is bright, buying an index might be interesting. As you cautioned, implicitly, though, unlike companies, a held coin doesn't actually make nor sell anything. It's more like buying a forex index than a stock market index.

I think there are some interesting use cases that probably aren't even considered by a lot of people. But I'm not sure how they'll play out.

For example; there could be a time in the future where smaller companies decide to go public through a token (i.e. an ICO, but with a company, not a utility token) at a fraction of the cost it currently takes to do an IPO. I'm not talking about scammy pump and dumps, but an actual company with employees, assets and a business model.

Underwriter banks generally 1) sell IPO shares below value to their investors to cause a first day trading pop, meaning less money into the pockets of the company; and 2) take between 3 to 10% of the raised capital as fees for their efforts. On tens, hundreds of millions or billions of dollars.

I could see crypto being a more efficient way of doing that, cutting out the middleman, and where a token represents a share.

Jay Clayton (Chairman of the SEC) was talking about this last week.

He was saying that the cost / overhead difference between ICO and IPO is so large that they either need to make IPO'ing easier or perhaps integrate into crypto in future -- otherwise companies will just ICO instead.

So it could be that crypto helps traditional systems, while reducing costs for both parties.

Yes, absolutely. ICOs are the wild west right now, but I think most developed countries will eventually introduce IPO-light regulation for token issuers so that this becomes a completely legal and viable way to raise capital. Mind: this is longer term, not for tomorrow.

Legal and other costs should come down a lot as well, as these things will end up being more standardised. You won't need to pay millions in legal fees, perhaps tens or (at most) hundreds of thousands.

In general I think the value in crypto will come from offering liquidity in certain situations by tokenising (perhaps smaller) assets (e.g. make it easy to sell a property ownership share with rental income in a SF office building through some token to an investor in Germany), and generally making a lot of "expensive" things more efficient by cutting out the middleman.

Do you have a link for this discussion? This is interesting.

I can find a shortened version of the full interview: https://youtu.be/wFr1ooaVPjY?t=8m59s

IPO stuff is from 9 mins, but the whole video is crypto related / fairly interesting.

So if you lose your private keys you're out all your shares? Or maybe you get hacked and lose your retirement savings?

The reason IPOs cost money is because the solutions to problems like the above cost money, and crypto-tokens don't change that simple fact.

One goal is to automate most of the work of a transfer agent, not to eliminate them completely. And that’s the open question: how many roles in the process can be simplified and to what degree?

https://www.sec.gov/fast-answers/answerstransferagenthtm.htm...

> So if you lose your private keys you're out all your shares? Or maybe you get hacked and lose your retirement savings?

You act as if identity and account theft aren't things. A private key sounds a lot better than a 9 digit number with predictabilities and a bit of social engineering.

The investment bank syndicate often takes on some or all of the risk of a failure to sell a new issue. Also, in the equity markets, there is a legal and regulated way for the syndicate to prop up the initial price to maintain the target sale price. So, even with an ICO, the role of an investment bank syndicate may be necessary.

Also all of the equivalent safeguards against insider trading, self-dealing, and restricted transfer protections would need to be created.

In strict fairness this also happens in ICOs, it's just that the underwriter banks are replaced to an extent by presale investors who buy at a discount.

This is a good point, however the volatility is primarily that the space / projects are so new.

The economic structure of each project varies, however most are designed so that if they are used for the utility they offer then they will have a price > zero.

Due to the fixed number of coins in circulation the value should rise in some relationship with increased adoption & time (time due to deflation)

Probably only a handful of coins will be used for B2C commerce. Notable other utility includes:

> Decentralised storage (currently much cheaper than any company can offer)

> Supply chain tracking

> Website monetisation systems (without needing ads)

> Smart Contracts

> Create your own blockchain (backed by existing decentralisation)

In summary: if it's used then a project should succeed.

What if share of the S&P 500 were traded in a crypto currency rather than say dollars as they are today? Wouldn't that crypto currency have more intrinsic value than the dollar?

Not being tied to gold, the dollar only has value because "we say so".

I could see a world where stock exchanges trade in crypto currency <a> and other cryto currencies are pegged to <a> in some way.

The dollar has (disproportionate) value because it's the currency for global commerce (i.e. oil and other commodities).

Gold however only has value because we believe it is a store of wealth, and we believe it has value.

> The dollar has (disproportionate) value because it's the currency for global commerce

Right... and when OPEC says they'll only trade in OilyBoyCoins?

> Gold however only has value because we believe it is a store of wealth, and we believe it has value.

That use to be true but now it's used heavily in various industries like consumer electronics and demand has been pushing the value upward.

On the second, do you have numbers on how much value comes from demand in consumer electronics? Afaik it is minimal, but I could be wrong.

I don't but I understand that it is minimal but has been growing steadily year-on-year.

This seems to indicate that global demand out paces supply: https://www.gold.org/research/gold-demand-trends/gold-demand...

Whats the ticker for OilyBoyCoins?

Instead, think of it this way. If a coin wins, it must necessarily be 100-10000x larger to "hold" the value of the monetary supply. If there's a 20% chance of "some coin winning" and you have 10 equally probable suspects, each of those suspects has a value of 1/10 of some portion of M1 * 0.20 probability.

Isn't that the point of indexing them?

If your thesis is 'I think one of these will win, I'm just not sure which one'

and you hope whichever wins, covers the losers

Expecting the final distribution of the coins to follow a Power Law distribution isn't incompatible with the index being profitable.

(the returns of YC are mostly Power Law based, right?)