A cryptocurrency hedge fund is a way people can invest in cryptocurrencies using the knowledge of experts. But what’s the difference between a hedge fund and a cryptocurrency index fund? A hedge fund is more aggressive and more active (also more expensive), so you’re more likely to see a return on your investment faster.
The downside is that, generally, hedge funds carry higher risks than other types of funds. If you add cryptocurrency to the equation, it can be almost like playing a game of roulette.
How a cryptocurrency hedge fund works
A hedge fund is created as a win-win partnership between a professional fund manager (the expert) and investors. The fund manager uses the money to maximise profits and investors benefit from the manager’s market manoeuvres.
A cryptocurrency hedge fund is a regular hedge fund that manages a portfolio including cryptocurrencies. Currently, there are two types of cryptocurrency hedge fund on the market:
- Funds that manage cryptocurrencies exclusively
- Funds that have some digital assets in their portfolios along with other types of assets
In both cases, a cryptocurrency hedge fund is always looking for more benefits for its investors, so it will continuously invest in ICOs and add new coins aiming to replicate the growth of Bitcoin or Ethereum.
The main advantage for investors lies in the possibility of making good money with little effort. Fund managers and expert traders decide which token sales to invest in and which to avoid. They also know when to buy and sell digital coins to increase profits.
In return, the cryptocurrency hedge fund takes a percentage of the profit in the form of management and performance fees.
What you should know before investing in a cryptocurrency hedge fund
A cryptocurrency hedge fund can earn you a lot of money very quickly, but it can also make you lose most of your capital. Some would say it’s closer to gambling than to traditional investment strategies, although that could just be looking at things from a conservative point of view.
Cryptocurrencies are volatile and risky enough – in the cryptocurrency markets, prices can drop and rise by hundreds of dollars in less than 24 hours.
By investing in a cryptocurrency hedge fund, you add layer after layer of risk associated with speculative investments and following digital coins that have the highest potential return.
That doesn’t mean that cryptocurrency hedge funds aren’t a wise investment option though. Just don’t keep all your eggs in one basket. Choose your partners wisely – there are high chances for a good return.
When it comes to cryptocurrency hedge funds, you need to thoroughly research the fund managers before investing. Remember, your financial future depends on their knowledge and abilities to operate in the market.
Cryptocurrency hedge funds
After the explosive growth of 2017, the market saw its first cryptocurrency millionaires and more people started to look into easy ways to make money fast on the blockchain.
That explains why the number of cryptocurrency hedge funds has been growing since then.
Here are some of the most popular investment firms and cryptocurrency hedge funds at the moment:
- Pantera Capital: This is an investment firm focused exclusively on crypto assets, blockchain technology, and digital currencies. Its portfolio includes investments in companies like Bitstamp, Open Token, Ripple, and Zcash. All in all, it manages over $450 million across four cryptocurrency hedge funds and three venture funds.
- Silver 8 Capital: This is a cryptocurrency hedge fund from Florida that manages a multi-strategy crypto fund. It invests in fintech-powered companies like Abra, Coinbase, and RSK.
- Blackmoon: Part of the Blackmoon Financial Group, this platform is an excellent framework for tokenised investment funds – a product mostly designed for hedge fund managers. The creators have a solid background in the market, with experience in both finances and cryptocurrencies.
- CoinCapital: This Canadian investment product is focused on both digital currencies and emerging technologies including blockchain, robotics, and AI.
- BitSpread: This is a platform that collaborates with banks and cryptocurrency exchanges to create operational infrastructure for investments in the blockchain assets market.
As more people grow interested in investing in digital assets, the cryptocurrency ecosystem has a wide range of hedge funds available for all types of investors. In fact, many new funds are created daily to meet demand.
When choosing the right cryptocurrency hedge fund, it’s essential to check out the reputation of the fund managers before trusting them with your money. Take the time to research the people behind the investment firm, as well as the technology they use to gather and analyse data.