How cryptocurrency investment funds work

How cryptocurrency investment funds work

Cryptocurrency investment funds under management totaled US$ 2 billion at the end of 2019; check how these funds work

How cryptocurrency investment funds work

By Editorial Staff

What are cryptocurrency investment funds? They are investment vehicles that resemble traditional investments, such as hedge funds, but are entirely composed of digital assets. At the end of 2019, according to PwC, these funds managed around US$ 2 billion.

What are the types of cryptocurrency funds?

Basically, there are three types of cryptocurrency investment funds: hedge funds, venture capital and private equity. Crypto Fund Research accounts for 804 cryptocurrency investment funds. Of these, 53% are venture capital, 44% hedge and 3% private equity.

What is the difference between these funds?

Venture capital funds are focused on buying companies, while hedge funds are managed wallets that aim to reduce market risks by combining different assets and strategies. Transfero Swiss’ investment funds are hedge funds.

What are the best cryptocurrency investment funds?

The largest cryptocurrency venture capital fund manager on the market is Pantera Capital, followed by Digital Currency Group and Polychain Capital.  Finally, regarding the hedge funds, the largest manager is Grayscale Investments, followed by Pantera Capital and Passport Capital.

What are the main Brazilian managers of cryptocurrency investment funds?

In Brazil, the largest managers of cryptocurrency investment funds are Transfero, Hashdex and BLP. Nevertheless, Transfero is the only one with funds with active management and combining assets with gold in its portfolio. They are aimed at professional and qualified investors.

Can anyone invest in cryptocurrency investment funds?

As a rule, these funds are aimed at institutional or qualified investors, requiring substantial minimum investments. But there are funds open to individuals and with amounts accessible to small investors.

What are the strategies used by these funds?

The strategies are varied, but the following can be highlighted:

  • Long/short equity, in which the manager buys assets that are considered undervalued and sells those it  believes are overvalued;
  • Neutral market, in which the manager balances long and short positions in order to reduce volatility and obtain returns;
  • Arbitration, in which the manager seeks price difference between exchanges and aims to reach profitability over them.

Is it safe to invest in these funds?

As a large part of the funds is not regulated, it is important to seek maximum information about the managers. For that purpose, it is important to check the transparency of the information, how the management is being done and the history of the manager.

How much does a cryptocurrency investment fund yield?

The income of cryptocurrency investment funds varies widely. But according to PwC, the average income in 2019 was 33% to 58%, depending on the strategy used. In large part, this performance is due to the appreciation of digital assets over the last year.

How do cryptocurrency investment funds work?

As a rule, the manager allocates the funds raised in different assets, usually digital assets or that replicate a real-world investment, with gold, for example. Allocation is always limited to the rules, parameters and limits set out in the fund’s regulation.