An Introduction to Crypto Funds
With the incredible growth that the cryptocurrency market has witnessed in the past twelve to eight months, it comes as no surprise that crypto investment funds have also started to emerge. They aim to provide investors with the opportunity to invest in a diversified portfolio of digital assets that are managed by investment professionals.
What Type of Crypto Funds Are There?
Currently, there is a range of different types of crypto funds that you can invest in. There are digital currency hedge funds, regulated cryptocurrency investment trusts, digital asset investment platforms for private investors, and crypto index tracker funds. Each of these funds offers different types of investments for different types of investors. In total, there are currently at least 175 crypto funds according to research by Autonomous Next.
Crypto Hedge Funds
Digital currency hedge funds, such as Polychain Capital, Metastable Capital, and BlockTower Capital, are investment companies that exclusively invest in digital currencies and blockchain assets with the goal to generate high annual returns for their investors. Hedge funds, however, are usually only open to accredited investors and institutional investors and not for the general public.
Cryptocurrency Investment Trusts
There are also regulated cryptocurrency investment trusts that enable accredited investors to purchase digital currencies such as bitcoin (BTC), Zcash (ZEC) and ethereum classic (ETC), which have been launched by Digital Currency Group-owned asset management company Grayscale Investments. Recently, Grayscale also announced that it is planning to launch five new cryptocurrency funds by April 2018.
Digital Asset Investment Platforms
In the past eighteen months, we have also been able to witness the emergence of cryptocurrency investment platforms targeted at retail investors. Iconomi and TaaS are two examples of blockchain asset investment platforms that enable private investors to invest in a diversified portfolio of digital assets managed by cryptocurrency experts. Both crypto investment platforms were funded through successful initial coin offerings and have been able to gain substantial popularity among digital currency investors.
Crypto Index Tracker Funds
Finally, there are also crypto index tracker funds that buy and hold a market capitalization-weighted portfolio of the world’s leading cryptocurrencies. Examples of cryptocurrency index tracker funds would be the new tokenized crypto index fund CRYPTO20, which is targeted at retail investors, and Crescent Crypto, a passive index tracking fund targeted at accredited investors.
How Safe Are Crypto Funds?
A big argument for investing in a digital currency fund as opposed to buying a basket of cryptocurrencies yourself is that you are not responsible for having to securely store a range of different digital assets in different wallets. Instead, this responsibility is passed on to the crypto fund and for that plus their portfolio management skills, you are paying an annual asset management fee.
Having said that, the reality is that not all cryptocurrency companies have enough cybersecurity measures in place to ensure that funds are kept safe at all times. This has been made evident by a report by global consultancy company Deloitte, which found that hackers have stolen USD 400 million worth of cryptocurrency from initial coin offerings in the last two years. This number amounts to a whopping 10% of all funds raised during that time period.
This highlights the risks of letting third-parties handle your digital investments. Hence, it is important to only invest with reputable investment companies, preferably with those who insure their digital asset holdings.
The Future Looks Bright for Crypto Funds
As lawmakers around the world are currently discussing cryptocurrency regulations, we can assume that once these regulations are in place, more digital currency funds will appear as part of the natural progress of cryptocurrencies as an asset class. Currently, there is already some choice for investors but this will likely increase in the coming 12 to 24 months.
The growth of crypto funds is also a testament to the increasing maturity of cryptocurrencies as an asset class. More and more professional investors are recognizing that digital assets will likely play a role in the future of the financial markets and want to position themselves correctly to benefit from this future development.
Should You Invest in Crypto Funds?
The decision of whether one should choose to invest in crypto funds over building one’s own digital asset portfolio lies with the individual and is largely dependent on how much time the individual can dedicate to cryptocurrency investing. Having said that, for investors who do not want to spend their days staring at screens and for those who prefer not to go through the somewhat arduous ordeal of having to securely store each coin in its separate dedicated wallet, crypto funds are the natural choice.
Also, while funds charge an annual management fee that has to be taken in consideration and subtracted from the annual returns, the convenience and the security of holding cryptocurrencies in a fund as opposed to having to store them oneself will likely drive millions to stick their money into crypto funds in the near future.
Therefore, for anyone who prefers a more hands-off approach to investing, crypto funds are the logical choice.