Long trusted hedge and venture capital funds are blowing up bitcoin, with many other fund options on the way.
Crypto funds are showing explosive popularity in the digital markets, especially as Bitcoin and Ethereum prices continue to rise on a stable trajectory. Where the market essentially doubled in size between 2018 and 2019, from an estimated $1 billion to over $2 Billion Assets Under Management respectively, this was a huge jump to see in a primary bear market. Leading many to believe that these types of investment options will only continue to grow and flourish as application and adoption use cases continue to soar.
As a novice, but serious investor, there are a number of ways to begin feeling out market behaviors before jumping on board with a crypto fund. Enlisting the services of investor-focused exchange platforms like Bitvavo is generally an excellent place to start. Creating a diversified portfolio and familiarizing yourself with market trends and trusted trading habits may well help you choose the best crypto fund in the future.
What Is a Crypto Fund?
Crypto funds, much like their traditional counterparts are essentially a group of collaborators that invest in a variety of different digital assets, then share the profit as the value grows. Funds are largely considered long term investments, as it’s rare for withdrawals to be made within six months of investment. For a long time, the inherent volatility of bitcoin left many hedge and venture capital fund creators less than interested in the market. But 2020 has brought some good news with it, and that is bitcoin’s newly verified security.
Values have been surprisingly stable for the coin for some time, particularly after it’s a strong and quick recovery following the market shakeout in March. Leading many new and exciting firms to create funds that are doing quite well. Well over half of the crypto funds in existence are venture capital funds- usually involved in new startups revolving blockchain or crypto technologies. The rest are primarily functioning as hedge funds.
Most hedge style funds use both a long and short strategy, effectively protecting their investors against market fluctuations and ensuring gains whether the market rises or falls. Market Neutral strategies are also employed, though often see smaller returns. However, what makes these strategies so enticing is that they serve to mitigate a large amount of risk; as they invest in multiple assets, looking for long and short positions to balance out. Creating a market exposure net zero.
There is also the use of arbitrage, in which assets are bought on one exchange and sold on another at a better price. Which can prove to be an extremely lucrative practice in the nascent cryptocurrency markets. However, these types of investments take near-constant interaction and fast-paced trading. They also expose investors to a higher level of risk. That being said, arbitrage is seen as a way to make a number of small returns, quickly.
How to Choose a Crypto Fund
Most funds require serious buy-in capital. Usually in the neighborhood of tens to hundreds of thousands of dollars. Making it a unique opportunity for those capable. However, it’s important to note that the success of any particular fund rests solely on the shoulders of those managing it, so it requires an inordinate amount of trust and expertise. Choosing a crypto fund comes down to choosing an excellent fund manager.
This makes it wildly important to pay close attention to any fund manager’s track record, and do your due diligence when it comes to learning about the funds you’re considering investing in. Because the crypto space is still relatively new when it comes to these more traditional investment options, track records can be difficult to ascertain. Pay close attention to their general strategies and find out as much as you can about any other investors that are involved.
At the present moment, most funds primarily focus on Bitcoin and Ethereum, with a scant few other altcoins being offered. This suggests that crypto funds are an investment opportunity that is only really just bringing to be explored. This means that lighter investors may be able to get in on the action as the market grows. While all investments do come with an amount of risk, the projected future of cryptocurrencies and their associated technological applications are indeed extremely promising.