In equities, indices work because most active managers underperform the market over long horizons. In crypto, indices work for the same reason and a few additional ones.

Sector rotation is faster

An equity sector cycle plays out over years. A crypto sector cycle plays out over months. AI tokens, RWA, memecoins, restaking, each has dominated for a quarter or two then faded. An allocator chasing rotations by hand is constantly behind. An index rebalances on a schedule and rides the next leader without effort.

New entrants matter more

In equities, the top 10 index components rarely change. In crypto, the top 10 looked completely different in 2017, 2020, and 2024. An index that includes new entrants by methodology, not by manager intuition, captures emerging leaders that a static portfolio would miss.

Risk concentration is severe

Single-token blow-ups in crypto are common. Protocol exploits, regulatory action, exchange delistings. A 10% allocation to a token that goes to zero is a real outcome. The same allocation through an index is capped and rebalanced before it metastasizes.