Coinbase announced its own Index Fund, allowing investors access to all digital assets listed on Coinbase’s exchange, GDAX, weighted by market cap. All new assets listed on the exchange will be automatically added to the fund.

Great, but what’s an Index Fund?

Index funds may be a foreign concept to newcomers, but we’re here to explain.

An index fund is a type of mutual fund that includes a portfolio designed to follow a market index.

Investors have greater diversified exposure to a range of assets, and the ability to track the performance of an entire asset class rather than having to choose individual assets.

Some popular index funds track the S&P 500, Russell 2000, MSCI EAFE, Wilshire 5000, and others. With an S&P 500 index fund, an investor can own the same stocks within the S&P 500.

How does a Coinbase Index Fund work?

With a Coinbase Index Fund, investors can own all the assets within the newly announced Coinbase Index. This index measures the financial performance of all assets listed on GDAX, by market cap. The index level tracks changes in supply as well as price.

You can view the index in real-time on Coinbase’s website and read up on the methodology used to construct the index. At the time of writing, the index currently stands at 4,340.76.

What are the benefits of an Index Fund?

Index funds have become increasingly popular as a successful form of passive investment. Instead of trying to “beat the market”, which can be difficult to accurately predict, passive investors and index fund investors try to “join the market” by buying and holding, and by tracking the market performance instead of individual assets.

In short, they are more resistant to major swings in the market, avoiding the usual risk that active investors experience.

Index funds also have lower management expense ratios. They do not need a team of analysts or managers to conduct research. Index funds are designed to perform better than individual assets on a long-term range. It’s not yet clear how Coinbase will approach expense ratios.

How do I invest in the Coinbase Index Fund?

Currently, the Coinbase Index Fund is only available for U.S. residents who are accredited investors.

Coinbase continues to work on launching more funds available to all investors, and you can sign up for updates and early access now.