What You Need to Know Before Investing
All investments carry risks, but both investment funds and cryptocurrencies have risks that are above average. When the two are combined, the level of risk taken on is almost doubled. This means that while you can make a lot of money quickly in cryptocurrency investment funds, you can also lose all your money just as fast.
Investing in cryptocurrencies right now is much bolder than putting money into the broad stock market through a fund. This doesn’t mean you shouldn’t use it, but it means you need to be aware of the risks you’re taking.
Note: In 2020, the average cryptocurrency fund returned over 128%, compared to 30% in 2019.
Furthermore, not all cryptocurrencies are created equal. Due to the novelty and lack of regulation, many new cryptocurrencies constantly emerge. Each one is unique, so you need to be aware of the differences between them.
It’s also helpful to know who the founders are and how the market has reacted to new cryptocurrencies before investing. This means you should wait for the rest of the market to determine whether the new cryptocurrency is a good investment before risking your money.
Bitcoin is still the benchmark, followed by Ethereum in terms of market creation and utility. Dogecoin is an exception with its unique audience driving its growth and volatility. Any other cryptocurrency needs to be studied on a case-by-case basis.
The value of cryptocurrencies can rise as quickly as they can fall. There is also a lot of hype and media interest surrounding them. Excitement can lead people to get overly enthusiastic about investing, which can result in market bubbles and crashes. However, there are still some funds that have stood the test of time and may be worth considering. Here are three popular cryptocurrency investment funds and what sets them apart.
Cryptocurrency Investment Funds
Pantera Capital
As of November 2021, Pantera Capital managed $6.4 billion in blockchain assets. You must have over $100,000 to qualify for investment. This makes this fund best suited for institutional investors or individuals with very high net worth. This company was founded in 2013, making it relatively old in terms of cryptocurrency investment funds.
Note: Four out of every five (81%) of cryptocurrency investment funds launched between 2017 and 2020, demonstrating how new this concept is.
You will find that the returns of this fund are varied. Nevertheless, if you have the money to invest (and thus potentially lose), it may be worth your time to check it out.
Coin Capital
Coin Capital is more suitable for individuals with smaller portfolios compared to Pantera Capital. This fund invests in a variety of cryptocurrencies and emerging blockchain companies, as well as individual cryptocurrency offerings. It manages over 40 different cryptocurrencies, including Ethereum, Litecoin, Bitcoin, Ripple, and Dash.
Bitcoin Reserve
Bitcoin Reserve manages a cryptocurrency investment fund called the Arbitrage Fund. This fund trades across various cryptocurrency exchanges simultaneously to attempt to correct market inefficiencies.
This is an interesting strategy because many cryptocurrencies follow different prices across different cryptocurrency exchanges. The Arbitrage Fund aims to generate profits and reduce risks by capitalizing on these price discrepancies.
Note: The intermediary cryptocurrency investment fund had $15 million in assets under management, six paid employees, and approximately $300,000 in revenue. At this rate, the average fund will not be able to sustain operations for very long unless it charges very high management fees or finds alternative funding – this means that funds with lower assets will have higher risks and costs than larger funds.
Fund
Bitcoin Reserve is not the easiest fund for average investors to access unless you have a lot of excess capital. You will still need to have more than $59,000 available to enter the fund.
Summary
There are many cryptocurrency investment funds you can invest in, but it’s good to keep in mind that investment funds are inherently high-risk. You need to ensure you are investing money that you can afford to lose. Understand the risks so you know how much you can withstand. Cryptocurrencies are an exciting way to invest, but it is still too early to say whether they will have staying power like fiat currencies or will collapse after a lot of hype.
Frequently Asked Questions (FAQs)
How does a cryptocurrency investment fund work?
A cryptocurrency investment fund operates in basically the same way that any other investment fund does. Investors pool their money together towards a common goal. In this case, that common goal involves exposure to cryptocurrencies. Similar to traditional investment funds, investors in cryptocurrency investment funds are typically high-net-worth individuals, family offices, and others with access to large amounts of capital.
How do you start a cryptocurrency investment fund?
There are relatively few hurdles to starting an investment fund. Investment funds are typically structured as a business entity, such as a limited partnership or a limited liability company (LLC), so the type of entity that the fund chooses will determine the specific steps that need to be taken. Depending on the amount of money you are managing (and who is managing it), you may also need to file forms with the Securities and Exchange Commission (SEC).
The Balance does not provide tax, investment, or financial advice. Information is provided without regard to the investment objectives or risk tolerance of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risks, including the risk of losing principal.
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Sources:
PricewaterhouseCoopers Limited. “3rd Annual Global Crypto Hedge Fund Report 2021.”
Pantera Capital. “Pantera Bitcoin Fund,” Page 3.
Coin Capital. “About.”
Board of Governors of the Federal Reserve System. “Hedge Funds.”
Source: https://www.thebalancemoney.com/best-cryptocurrency-hedge-funds-4582184
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