Why was there enormous work involved? Were you rebalancing very often? Note that Coinbase's fund will be made up of only four cryptocurrencies, not 25 like yours.
Another consideration specific to cryptocurrencies like Bitcoin is the relatively high transaction fee. You don't want to see your investments be whittled away by frequent transaction fees doing unnecessary rebalances. I haven't spent enough time researching cryptocurrencies to know how all these considerations shake out when it comes to this specific index fund, but as a pure gut instinct the annual rebalancing was less frequent than I would have expected from this type of fund.
([1] For the not-your-keys-not-your-coins crowd: if you don't trust Coinbase with the coins, you can't trust it with the fund either.)
I came up with some more they do for 2%/y:
* Buy more coins when their fund expands
* Secure the shit out of those private keys
Well I hope they are doing that already.
Initial coin buy is part of those 4 / yr.
Are they insured for 100% of the value of the coins on those private keys?
If not, you are paying 2% YoY + X%, where X% is your counterparty risk - the odds that someone at Coinbase fucks up, and your money is irreversibly gone.
Currently they have insurance on their hot wallet coins, which I think is about 5% of the total. The cold wallets aren't insured, but they're paper wallets held in safe deposit boxes all over the world, so it's unlikely that a large percentage would be lost.
determination of value for forks should be made by us. the point is that it's free money, that an exchange could well be pocketing for itself.
It don't begrudge Coinbase's handling of bitcoin cash, because it's legitimately expensive to hook a new currency up to their framework, and nobody should be able to force them to do that just by declaring a new currency based on bitcoin.
BUT, everyone should recognize that part of Coinbase's business model is retaining all the privileges associated with holding private keys -- including choices about how to handle spin-offs, secondary services such as account mixing, and so-on.
It's pretty common to derive value from holding on to someone else's cash, so in other products (like bank accounts) some of that value comes back to you as interest, or at least offsets other service fees. Coinbase Asset Management seems to be targeting minimal services, maximum float capture, and maximum fees all at the same time.
I mean if the current price of BTC is $10,500, buying $10m worth of BTC will drive up the price as they're doing it. So how can you rebalance accurately if you're affecting the price of these cryptocurrencies while you do it?
Or do they just do like a "best guess" and overbuy a little and then sell off to get the balance right? I guess any index fund would have this issue, though.
For example, several coins (like Neo and Ripple) have supplies that grow and are centrally controlled, but many coins have planned inflation schedules. We know that the supply of many of the large-cap coins is going to grow over the next couple of years, and that needs to be taken into consideration when valuing them.
To explain why that is important: if people buy a coin at a certain price _knowing_ that a certain amount of inflation is going to happen, that means investors think that the market cap of the coin is actually much more (think of this like Discounted Cash Flow). Restated, if people buy these coins knowing that the supply is actually going up, that means that they think that the value of the coin is actually much higher than the current market cap.
If you want to learn more about indexing methodologies for cryptocurrencies, you should check out our website: https://www.bitwiseinvestments.com/index