Kai H. Kuljurgis, the chief executive and founder of Coindex in a recent interview with LearnBonds.com explained the firm’s intelligent portfolio venture.
Coindex founder also explained how the company has established a rapport with the German regulator, BaFin. At the same time, Kuljurgis discussed the future cryptocurrencies amid the current price fluctuations.
1. What is coindex and what motivated you to create a crypto-related product?
My co-founder and I both had experience with crypto assets. In 2017 a lot of friends approached us if we could help them get into this asset class. We were both closing down our previous companies and thought about ways of creating a digital product that would allow our friends to easily enter crypto investments. After evaluating multiple models to track the global market we decided to build an index based investment platform. With Coindex users can buy, manage and store a diversified crypto portfolio by offering portfolios based on our index algorithm. Automated rebalancing and monthly saving plans closes the loop of making an investment as easy as possible.
2. What does an intelligent portfolio mean? How does your product stand out against the competition?
Intelligent portfolios are detached from emotion. All portfolios offered with coindex are based on the cdx index family – the cdx is the first German crypto index to receive an ISIN number and thus being listed on exchanges like Börse Stuttgart. It tracks the global crypto market covering around 98 per cent of total market capitalisation with only 30 assets. The index family around the cdx currently consists of 18 fully data-driven indices, that track the market by including 2 to 50 constituent – these act as the foundation for the intelligent portfolios. Using coindex you will, for example, be able to choose the cdx5 (including five data-driven constituents) as a base for your index-based portfolio. For the manual portfolio, you will be able to choose out of these five data-driven assets. With this approach, Coindex takes out a major part of the complexity of crypto investment for many retail investors.
Furthermore, we offer a fully regulated product with a unique proposition for retail investors without domain knowledge: as described, you can enter the crypto market without having to worry about what assets to buy. We combine this with automated rebalancing, data-driven portfolios, monthly savings plans, super-intuitive user experience and regulatory compliance in Germany, making our product unique within the competitive landscape. You get all the theoretical benefits of a crypto exchange traded fund with the additional advantage of having real crypto exposure.
3. Why are you focused on the German market?
We are working with German partners who allow us to offer to coindex in compliance with all regulatory requirements specifically in Germany, which in our opinion bears great potential, that has not fully been gathered yet. Thus we want to win this market first and then start internationalising to other markets in a step by step approach. Our business model and set up with the involved partners is fully applicable to the European Economic Area (EEA) as it is, so it is likely that we will expand to the EEA in the next step.
4. What was the idea behind partnering with a German bank?
When setting up our business model we were not only looking for just a bank but for a real partner to set up coindex in Germany. Partnering with a German bank, in general, allows us to fulfill regulatory requirements while our partner allows us to create exactly the product that we want to create. Also, the partnership bears great potential to add more features in terms of investment, asset management, banking, payment and much more due to its extensive licensing. Besides, we are of the opinion that fintech and the future of banks as we know them best happens in strong, strategic partnerships, where both sides learn and grow together. This is the type of partnership we found with our bank partner.
5. What does the BaFin [Germany’s financial regulator] say about your project?
Our partner has set up scalable processes and is in close communication with the BaFin concerning the realization of that setup. Additionally, we have a waterproof legal opinion concerning the validity of our business setup applying these processes. All lights are currently green for the launch of coindex and it is our target to become a positive example for regulated crypto products.
You are finally launching the intelligent portfolio in the first quarter of 2020 after working on it since mid-2018. Which part of the product required the most resources to set up?
We wanted to take our time to get the user experience right and build the product that our key customers really want to use. Apart from that, we built a highly advanced tech stack inhouse that covers all use cases including the secure custody of crypto assets. Combining the fulfillment of legal requirements with this reusable tech stack was very resource-intensive.
6. Since 2017 all-time highs of cryptocurrencies, the prices have fluctuated with some experts casting doubts on prospects of digital assets. Therefore, what made you proceed with this product amid the market uncertainty of the last two years?
First of all, we are strong believers in the value of crypto assets and we think that crypto is here to stay. Short term fluctuations do not change that opinion. Secondly, market development shows a professionalisation of the whole asset class, which is also supported by a lot of institutional players entering the market. Of course, it cost us energy and resources to survive those times, but we came out stronger than before and the uncertainties helped cut out most black sheep in the market. Accelerated by new regulations regarding the custody of crypto assets, the market caught a new dynamic, which we see as proof that coindex – with its approaching launch – is now in a very comfortable, promising position.
7. The cryptocurrency sector has several hurdles like legislation and slow adoption. In your opinion what is the biggest challenge facing the sector and how does this affect your product? Maybe you can give an overview of how you plan to overcome this challenge.
I think the biggest challenge we are facing – and that is also what we experience day to day – is the trust of the general population. Times of ICO hypes and scams have not helped in creating a trustable asset class. One goal of our product is opening the asset class for all private investors and thus making them understand the value of crypto assets. We are currently building an extensive content and education strategy to build trust in the population. We are attending events and plan to work with a lot of traditional media and partners to create awareness for crypto.
8. Bitcoin halving is coming in June, and there is divided opinion in regards to the true impact on the price of Bitcoin. From your position, how will the price be affected by the halving?
We can not predict the price development of Bitcoin in any case. There is some interesting data on the stock-to-flow ratio of Bitcoin and possible price outcomes, but I do not want to suggest that I am smarter than the market. We will have to wait and see to understand the impacts of this year’s halving. All I can say is that to my mind a data-driven investment strategy is the best way of being prepared for events like this since an index distributes weighting without emotion and adjusts to overall market developments.
9. What measures have you put in place to attract more clients once your intelligent crypto portfolios launch?
We are currently fine-tuning our go-to-market strategy. Like already mentioned we will put a lot of value on content and education as well as strategic partnerships to build trust and be the go-to source for crypto investments in Germany. Additionally, we are working with diverse media partners to spread the message. For growth, after our launch, we are focusing a lot on making the early adopters of Coindex as happy as possible and creating incentives for them to become product ambassadors. Even in 2020 word of mouth is still one of the strongest marketing tools.
10. Simple operation, transparency, and reliability are among your core values. How do you plan to maintain these values in your operations?
We are committed to building the best product possible and hiring only people sharing our values and supporting our mission. The people working at coindex are the biggest influence of carrying our values to the masses. Sustainable growth is the main driver for this and thus for maintaining our values within the operation.
Thank you, Kai, for the conversation!