cryptofunds

What are cryptofunds?

An alternative to investing in cryptocurrencies are investment funds or crypto funds. These cryptocurrency funds refer to a portfolio containing a variety of digital assets that are managed by a group of professionals who decide which is the best investment alternative. They are an indispensable tool for identifying potential crypto funds to invest in startups, accessing fund portfolios and management teams.

What types of Investment Funds are there?

 There are currently more than 800 cryptocurrency / blockchain investment funds. Most are set up as venture capital funds, while a large number are hedge funds or hybrid funds. There are also some crypto ETFs and crypto private equity funds. We can differentiate them as:

  • Hedge Funds: the objective is to obtain the highest profit in the shortest possible time or in the shortest possible time.
  • Venture Capital or venture capital funds: where long-term investments are made. 
  • Private Equity or private equity funds: long-term investments are made in private companies.

Source: Crypto Fund Research,2020

Venture funds have overtaken hedge funds as the most common type of crypto investment funds. Existing technology / FinTech VC firms are expanding investments in blockchain startups and launching their own funds. As some blockchain companies mature, private equity funds are starting to get involved. Hybrid funds are those that invest in cryptocurrencies as well as initial coin offerings, referred to as hedge funds, although they take on some characteristics of venture funds.

Like a hedge fund, cryptocurrency investment funds seek to create diversified portfolios based on different classes of cryptocurrencies that have the potential to generate competitive returns with the lowest possible level of risk. It is an active management characterised by a series of both short- and long-term trades that seek to generate relatively stable and meaningful returns.

Ventura Capital or venture capital funds seek to raise capital with the objective of investing in sectors, industries or countries that, while having a high associated risk, at the same time have the growth potential for high returns.

In the case of cryptocurrency-based venture capital funds, capital is allocated to create new projects, tokens, forks, software development or blockchain applications that, as in the case of a venture capital fund, have the potential to generate high rates of return on investment.

The evolution of cryptofunds

  • 2017 was a record year for new cryptocurrency fund launches with more than 290 new funds, including hedge funds and private equity. This was more than triple the number of funds launched in 2016.
  • 2018 maintained the high pace of new crypto fund launches seen in 2017 in terms of launches with more than 230.
  • 2019 and 2020, as expected, the number of crypto funds launched that year slowed down from the rapid pace of 2017 and 2018.

Source: Crypto Fund Research,2020

Crypto-funds in the news.

No financial sector is evolving faster than the crypto fund space. Cryptocurrency funds are modern investment vehicles, which according to Crypto Fund Research, the leading crypto fund database, there are currently more than 800 crypto funds including hedge funds and private equity, with the latter accounting for more than 50%.

One particularity of many cryptocurrency investment funds is that they make use of technology to create profitable investment portfolios. For example, one of the most popular funds today is CIX.Fund, which is based on artificial intelligence (AI) algorithms that search for buy signals in more than 2,000 tokens in order to select the 100 best investment alternatives.

Another investment fund with growing popularity is Pantera Capital, which allows for both hedge and venture capital investments. In the case of BitwiseAsset Management, the fund relies on the use of algorithms and the expertise of professional investors to provide diversified exposure to cryptocurrency indices.

Digital Currency Group, ICONOMI, Protocol Ventures, Galaxy Digital Assets are other well-known crypto funds.

Entry strategies for cryptofunds

Entry strategies include: the "long/short equity" strategy where undervalued and overvalued assets are watched in order to generate profits when the market is rising or falling. The strategy known as "market neutral" where investments are balanced, half in long positions and half in short positions in the same asset, allows the risk of volatility to be reduced so that market exposure is reduced to zero. And the "arbitrage" strategy consists of buying assets on one exchange and then selling them on another that offers a better price.

Positive and negative aspects of investment funds.

In general, investment funds have become a very popular and growing alternative. However, it is important to note that as with any investment, cryptocurrency investment funds have advantages and disadvantages. The biggest benefits of investing in cryptocurrency investment funds are that they are managed by professionals and make use of state-of-the-art technology to select the most profitable alternatives.

In this way, cryptocurrency investment funds represent an excellent alternative for diversification because they allow you to take advantage of active management to obtain returns with less risk, time and effort. In addition, it is possible to see the evolution of the investment in real time and they are designed so that any type of person, both beginner and expert investors, can invest in them.

However, not all is rosy about cryptocurrency investment funds, as they tend to have management costs and in some cases there are penalties if the capital is withdrawn before the time agreed with the fund. In addition, it should be noted that because the funds are built with cryptoassets, they may also have high volatility.

Nevertheless, cryptocurrency investment funds are here to stay, and they continue to drive market growth by offering the possibility to take advantage of the cryptocurrency boom hand in hand with technology, in order to get the highest returns with the lowest risk in a market characterised by rapidly changing trends.

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