Top 3 Best Indices to Trade Against Crypto
Passive investing is a buzzword these days. Just as most cops (and bad guys) couldn’t keep up with Spiderman, most fund managers cannot keep up with the largest indices. Passive investing usually involves investing in an ETF or index fund that tracks……you guessed it, an index. While the returns for a particular year won’t look spectacular, they definitely compound over time into something significant. “If you can’t beat ‘em, then join ‘em” goes the old saying. Passive investing has gained traction because a lot of fund managers couldn’t beat the index. Investors now have an array of products focused on index investing.
There is plenty of attention on indices. However, crypto investors and traders like doing things a bit differently. Therefore, Cerus Markets offers users the opportunity to trade crypto against indices. A crypto index pair allows users to go long crypto while going short an index or vice versa. So, for example, buying BTC/SPX means that you are bullish on Bitcoin and bearish on the S&P 500. You essentially believe that Bitcoin will relatively outperform the S&P 500. Similarly, going short on BTC/SPX means that you believe the S&P 500 will be stronger than Bitcoin over a certain time horizon.
A crypto index pair also allows users to easily convert from index to crypto. So, if you were invested in an index and now wanted to shift to crypto, you would have to sell the index, get into fiat money, and then use that money to buy crypto. A crypto index pair skips the fiat money part of the chain and saves you transaction costs.
Indices are widely tracked as they are often viewed as metrics representing the overall economic situation of a country and the state of its stock market. Information about indices gets published in all sorts of online and print media. If you are a market participant, then it is difficult to get away from any information about indices. Why not use that information in your trading? In this article, we will cover the top 3 best indices to trade against crypto. We have chosen the most commonly traded cryptos and well-known indices. If you wish to trade something else, then feel free to conduct your own analysis for any crypto-index pair of your choice.
LTC is the symbol for Litecoin while FTS denotes the FTSE 100 index. In the LTC/FTS pair, Litecoin is the base currency while the FTSE 100 index is the quote currency. Yes, we know that FTSE 100 is not a currency but an index, but in pairs trading, that is how the symbols get defined. The FTSE 100 is an index made up of the 100 largest (by market capitalization) companies on the London Stock Exchange. FTSE stands for Financial Times Stock Exchange.
In case you are wondering why we chose the FTSE 100 and not a popular index like the S&P 500 or the Nasdaq 100, then the answer is a correlation. There have been moments, especially since 2021, when Litecoin prices and the FTSE 100 have moved in opposite directions. So, if a trader was to go long on an LTC/FTS CFD (contract for difference), then money could have been made. Any period where the FTSE went down and Litecoin went up (due to the negative correlation) would have been excellent for a long position. Similarly, if the FTSE rose while Litecoin prices fell, a short trade would have made money.
The current price trends, as of January 2023, of Litecoin and FTSE 100 look strong. Litecoin is up about 80% since hitting a low in the middle of 2022. The FTSE 100 is close to its all-time high. It has broken out of the sideways channel where it spent most of 2022. The negative correlation between Litecoin and FTSE currently does not appear to exist. However, the correlation numbers for a pair are dynamic and can change constantly.
The next crypto-index pair that we would like to discuss is ETH/HSG. ETH stands for Ethereum while HSG stands for the Hang Seng index. Ethereum is popularly known for being the first altcoin (altcoin is a crypto coin other than Bitcoin). The Hang Seng index represents the largest companies listed on the Hong Kong stock exchange. The Hang Seng is a free-float adjusted market capitalization-based index.
We selected the Hang Seng index not because of the unproven advice of just saying “China” when you aren’t sure about a question on the economy, but because of the apparent low correlation between Ethereum and the Hang Seng index. In recent times, especially since 2021, there hasn’t been a clear relationship between the price of Ethereum and the Hang Seng index.
Low correlation instruments will likely require a trader to rely on studying price action closely. The trader cannot fall back on following a positive or negative correlation to guess the likely price direction. The value of the analysis may be higher when trading a pair with instruments that aren’t highly correlated.
The current price trend, as of January 2023, of the Hang Seng index appears to be bullish. After falling 50% in 2021 and 2022, the trend has been up since October 2022. The price has broken out to a 6-month high. Ethereum, meanwhile, is closing in on its 6-month high, but it is yet to break out of that level.
Our final crypto-index pair is Bitcoin and Nasdaq. The official symbol of the Nasdaq 100 index is NDQ. However, on Cerus Markets, you can trade the Bitcoin-Nasdaq CFD by punching in BTC/NAS. Bitcoin is the base currency and the Nasdaq 100 index is the quote currency.
The correlation between Bitcoin and Nasdaq is generally high. They both tend to move in tandem. So, if you are a crypto trader and are looking to catch trends in Bitcoin, then it may be worthwhile to also follow what is happening to the tech sector in America. Changes in interest rates tend to affect growth stocks more than value stocks and Nasdaq is full of growth stocks. So, trading the BTC/NAS pair can be a good way to trade the tech economy of America through cryptocurrencies.
The current price trend of Bitcoin, as of late January 2023, has been a strong uptrend in the first few days of January 2023 followed by a period of consolidation. Meanwhile, the Nasdaq 100 continues to trade in a range of 10,800 to 12,000.
If you would like to start trading cryptocurrency-index pairs through CFDs, then open a trading account now. Take advantage of the ongoing 100% welcome bonus offer for new sign-ups.