In this article,we discuss about Why might someone go Bankless? Outline the BED index strategy deployed by Bankless DAO. Show how the BED index strategy has performed over time compared to a more traditional investment route (such as sticking your money into the S&P 500). Use this analysis to suggest why or why not someone should consider going Bankless.
About: Bankless BED Index
Crypto investing should be simple and accessible to everyone, and it should also be secure. That’s why Index Coop has been founded.The Bankless DAO aims to increase awareness and adoption of bankless money. Based on these values, we are delighted to announce the Bankless BED Index ($BED), powered by Index Coop. A passive way to invest in the most promising crypto themes is offered by the BED Index.
The BED symbol stands for Bitcoin, Ethereum, and DeFi, and represents the upside potential of the three most profitable crypto themes: digital gold, programmable money, and decentralization. Uniswap v3, Index Coop, and TokenSets will be selling ERC20 tokens representing the index. And also Index Coop proposed managing a Set based on an index of Crypto’s most investable assets, BTC, ETH, and DPI, with equal weight. BED Index, short for Bankless BED Index, seeks to provide a safe, passive exposure to digital assets that will capture equal-weighted upside from the three most promising use cases in crypto: store of value, programmable money, and decentralized finance.
And we have a more additional benefits from this Bankless BED Index. Which are , BED simplifies the process of crypto exposure by providing a simple, set-and-forget method.The risk of individual crypto asset classes can be managed by holding an index in tandem with them. This prevents any asset accumulation by rebalancing monthly.It provides cost-efficiency by reducing streaming fees, dropping gas prices, rebalancing the economy and accounting for energy use.
Methodology of Bankless BED Index,
How to Maintain the Index?
Here are the fees we need: 0.25% of all BED transactions will be split 50/50 between Bankless and Index Coop.It is also important to note that Index Coop charges 0.95% on their DPI product, which has a 33% allocation to BED. Consequently, the effective fee for BED is 0.57% (0.12% Bankless, 0.35% Index Coop, 0.10% DFP).
Step 1 , Dicision Making : During the fourth week of the month, the phase of determination takes place. This phase is when the changes that need to be made to the system before it is reconstituted are being identified. Step 2, Reconstruction : During the first Friday of each month, the underlying index is rebalanced. Whenever an Underlying Index is rebalanced, the Fund is also rebalanced.
About : S&P 500
S&P stands for Standard and Poor, two of the two founding financial companies. Standard & Poor introduced it on March 4, 1957. In 1966, McGraw-Hill acquired it. In 2022 it will be owned by S&P Dow Jones Indices, which is a joint venture between S&P Global (formerly) McGraw Hill Financial, CME Group, and Dow Jones owner News Corp.
Based on their market capitalization, the list includes 500 of the largest publicly traded companies in the United States. Market capitalizations of the companies within the index are adjusted when floating-weighted indexes are weighted by the number of shares available for public trading. The depth and diversification of its market make it a leading indicator of stocks in the United States, and even the entire equity market at large. A stock index such as the S&P 500 can’t be invested directly but can be tracked through mutual funds.
To qualify for inclusion in the S&P 500, a company must have a market cap of at least $13.1 billion unadjusted. In addition, they must meet specific criteria in terms of liquidity and profitability.
Choosing Which is best one
Though both S& P 500 and Bankless BED Index follow very similar investment strategies, the below analysis may provide us with some insights into which is a more profitable investment and which one is more efficient.
The following graph can be used to calculate what your investment will be worth today if you invested 10K on Jan 3 2022. As we can see, the percentage increment on S&P 500 is greater than the other tickers. Likewise, the current value of your 10k investment in the S&P 500 has been reduced to 8.7K. However, the same 10k investment in the Bankless BED Index has been reduced to 6.3K. From this analysis, we can conclude that our investment lost less on the S&P 500 than the Bankless BED Index. Comparatively, the Bankless BED Index is losing more than other tickers(Which are Vanguard Growth Index Fund and also Ether).
As shown in the following chart, we can compare the average price of BED index to those of other investment titans for a particular time period. Compared to Ether, the BED index is moving more closely with its price than other investment titans. As an example, if the Ether price drops by -20.49%, the BED index will also fall by -19.50% for the week of Jan 23-29 2022. ARK Innovation Index Fund, Vangaurd Growth Index Fund, and S&P 500 prices are also down -7.09 %, -3.94 %, and -2.73% respectively in the same period.
Based on the graph below, we can see that the rise and fall of the S&P 500 are not comparable with those of the Bankless BED Index. As an example, the price increase on S&P 500 on Jan30-Feb 5 2022 week is 3.45%, but the price increase on BED Index is 11.64%. S&P 500 prices dropped by -2.73% from Jan 23-29, 2022, but BED Index prices dropped by -19.50% during the same period.
In the below graph, we can see that the $10K Investment in BED Index is tracked with other investment titans on a weekly basis.
- From the above analysis, it is apparent that the investment titans and BED index were all showing a loss on the current value of their investments due to the change in crypto volatility and the market downfall on the past 2-3 months.
- In fact, if we take a moment to compare two indices, the S&P 500 and the Bankless BED Index, with a $10K investment on January 3,2022, the current value of the S&P 500 is 8.7K and the current value of the BED index is 6.3K. The loss on BED Index investments is almost 20% more than the loss on S&P 500 investments.
- When we compare the average prices , we can clearly see that the BED index moves closer to Ether than other investment titans.
- The price compatibility between the S&P 500 and Bankless BED Index shows that the growth of investments is purely market driven. Now that the crypto market has become volatile, the Bankless BED Index has been losing value. Historically, the bankless BED index might have shown good growth.
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