Cryptocurrency funds are a new type of investment vehicle that parallels traditional portfolio investments, like hedge funds, but are composed entirely out of digital assets. Because of this, they play by slightly different rules than their legacy counterparts. Knowing how they differ and where to get involved is key for those who want to jump into this intriguing new world, so we’ve outlined the main points in this helpful guide.
What are cryptocurrency funds?
The term “cryptocurrency fund” refers to a portfolio containing a variety of different digital assets and is usually managed by one or a few individuals. Investors are then able to buy into these funds so that they can share in the profits as the value of the fund grows. According to data from Crypto Fund Research, a little over half of these act as venture capital funds, while the rest are predominantly hedge funds.
Venture capital funds involve a variety of investors pooling their money in order to buy into smaller businesses with high growth potential. Of course, in cryptocurrency funds these businesses are new projects and altcoins. Once the asset or assets have grown by a sufficient amount, they are usually sold off and investors take a cut of the profits.
Hedge funds act as portfolios that are actively managed and work to minimize risk in the market, hence the name “hedge.” These can be made up of any assets, but different assets are typically used in both long and short strategies, diversifying the portfolio in order to make the fund resistant to, or even profitable during, high volatility. Again, these funds are usually managed by small teams and are often only available to high-end investors, with minimum investments ranging in the tens to hundreds of thousands of dollars.
Traditional hedge funds also usually have minimum time constraints attached to them, so investors would be committed to keeping their money in the fund for at least one year, for example. They also tend to have fairly high fees, around 20% of profit, as incentive for the managers to provide solid performance. On that note, this entails putting trust into the team managing the strategies, and there is no guarantee that the fund will ultimately see a return. If poorly managed, the market volatility that these funds are supposed to protect against can also quickly wipe them out. This was seen in March with the sharp drop that came amid the coronavirus market panic. Some cryptocurrency funds weren’t prepared for such a sudden drop, and collapsed as a result.
Common strategies used by cryptocurrency fund managers
At this point, we should explore the strategies that fund managers use to grow their investments. One common tactic often invoked is called “long/short equity.” In this scenario, fund managers look at the assets they believe are undervalued and overvalued, and then place long and short positions accordingly. If their analysis is correct, then their portfolio should see gains whether the market is rising or falling.
A similar strategy is known as “market neutral.” Here, the goal is for the long and short positions to balance out, so that the market exposure nets to zero. Therefore, a manager may take a 50% long and 50% short in the same industry or asset in the hopes of reducing risk from volatility. It should be noted that reduction of risk generally means lower returns as well, which is an acceptable trade-off for some.
Another common strategy used is arbitrage. There are many types of arbitrage, but the general idea is to buy assets on one exchange and then sell them on another that is offering a better price. This is common in traditional hedge funds, but the cryptocurrency market often offers more lucrative opportunities due to its young and volatile nature. It is common for different platforms to offer slightly different prices on various assets, and if the move can be made fast enough, then making a profit can be relatively easy. That being said, speed is key, making this strategy a common favorite among high-frequency traders.
There are other strategies as well, such as “global macro,” which looks to take positions based upon larger trends within a market, and “short only,” which basically focuses on explicitly shorting assets that the managers feel are overvalued. Lastly, there is “quantitative,” which focuses solely on models, data and research to craft the portfolio. Realistically, it is not uncommon for multiple different strategies to be used, but it is essential that the fund managers understand what they are doing in implementing whichever one and are transparent about it with investors.
A variety of different ways to invest
This is generally the largest risk involved with investing in a cryptocurrency fund: clients need to put their trust into those behind it, which is why it is important to do research. The more information the managers are willing to share about who they are, how they are managing and what their track record is can help determine if they are right for an investor. That’s why, for many, partnering with a reputable firm is an essential part of the trust that they will see a return on their investment. Some of the biggest names in cryptocurrency funds include the Digital Currency Group, Galaxy Digital and Pantera Capital, among many others. All focus specifically on cryptocurrencies and other digital assets.
Of course, these will still generally require large, upfront investments from qualified individuals. However, retail investors who want to be in on this type of action might want to look at projects like Tokenbox. In addition to acting as a general wallet and exchange, Tokenbox allows users to “tokenize” their portfolios as well as invest in the tokens attached to the portfolios of others. This acts as a streamlined way to either begin a new cryptocurrency fund or get involved in an existing one. The tokens that are tied to winning portfolios can themselves be bought and sold, and their value is tied explicitly to the performance of their fund. Managers can then showcase their success to try and attract more backers. All of this is possible without the need for a massive initial investment, but rather acts more like purchasing any single cryptocurrency on an exchange.
What can this market look forward to?
The cryptocurrency fund outlook is fairly bright these days. According to a report by PricewaterhouseCoopers and Elwood Asset Management Services Ltd., the overall value of Assets Under Management in these funds grew from $1 billion in 2018 to an impressive $2 billion in 2019 — doubling the market’s size in a single year. On top of that, the median return on these investments in 2019 was 30%, down a little from 2018 but still far above most traditional hedge funds. This is, of course, due to the room for upside that is available in the market. Though a wide variety of cryptocurrencies can be found in various offerings, the study found that 97% offered Bitcoin (BTC), followed by Ether at 67% (ETH) and others such as XRP (XRP), Bitcoin Cash (BCH) and Litecoin (LTC), all being offered by about a third of the funds available.
This all points to a market that is really only beginning to be explored. As cryptocurrency grows into mass adoption, it is only logical to assume that the number and value of these investment vehicles will continue to rise. Risks will always be present, which is why investors must always do their homework, but the untapped potential of digital assets looks promising. If more retail investors can be brought into this realm as well, then the story of cryptocurrency funds may be just beginning.
Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim at providing you all important information that we could obtain, readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor this article can be considered as an investment advice.
A kormányoknak sokkal kevesebb dologba kellene beleszólniuk – állítja az amerikai képviselő
Tom Emmer amerikai képviselővel beszélgetett Anthony Pompliano legújabb podcastjében. Szó volt többek között Bitcoinról, decentralizációról, a Twitter-hackről és persze UFO-król is.
A Bitcoin decentralizált volta az, amely a fiat valuták fölé emeli a kriptopénzt – állítja Tom Emmer, az Amerikai Egyesült Államok Kongresszusának republikánus tagja.
Az Anthony Pomplianónak augusztus 3-án adott interjújában elítélően beszélt az amerikai pénzügyi rendszerről és annak működéséről.
Az aranystandard támogatójaként azt sem tartja szerencsésnek, hogy az állam nagyobb mértékben avatkozik be az emberek pénzügyeibe, mint arra valójában szükség lenne. Mint mondta:
Úgy gondolom, most egy következő fázisba tartunk, éppen ezért izgat engem annyira a kriptó, ez a terület. Mert, azt gondolom, a kormánynak van valamiféle szerepe? Ja, nem fogom azt mondani, hogy „nincs”. Csak nem gondolom, hogy nagy szerepe lenne. Szerintem az emberek saját magukat is képesek rendszabályozni.
Friedrich Hayek közgazdász-filozófus Út a szolgasághoz c. könyve alapján Emmer rámutatott, hogy egy centralizált rendszerben mindig lennie kell valakinek – vagy valamilyen csoportnak –, akik a pénz csoportosításáról döntenek. Ez pedig soha nem egy pozitív dolog.
A beszélgetés során szóba került a nem régi Twitter-hack, amely segített rávilágítani, mennyire megbízhatatlanok is tudnak lenni néha a központosított rendszerek.
Mégis – mint mondja – reméli, a fiat rendszer túl fogja élni a megpróbáltatásokat. Amivel mindössze gondja van, az a kormányok által történő megfigyelés:
Nincs szükségem arra, hogy a kormány figyelje, mit csinálok. Nincs joguk ahhoz, hogy tudják, mit csinálok. És tudod, őszintén, már most túl sok információnak vannak a birtokában. […] Én annak a híve vagyok, hogy a kormány ne ékelődjön közbe.
Ebből kifolyólag a CBDC-kel, vagyis a központi bankok által kibocsátott digitális valutákkal kapcsolatban sem vall túl pozitív nézeteket:
Nem tetszik az ötlet […] Pomp, ne feledd, valakinek mindig irányítania kell. […] Ha kriptopénzekkel dolgozunk, te irányítod a te tárcádat, én irányítom az enyémet, és te és én hajtjuk végre a cserét egymás között. Mert nincs szükségünk a Nagy Testvérre, hogy figyeljen minket.
A beszélgetés végén amolyan felfrissülésként szó esett még földönkívüliekről, akikkel kapcsolatban nevetve elmondta, miszerint reméli, hogy léteznek.
XRP Forms Crushing Textbook Reversal Sign After 30% Explosion
- XRP has seen an extremely strong rally over the past few days, outperforming Bitcoin and even Ethereum on some days.
- Since July 22nd, the asset has gained in excess of 50%, reaching highs not seen since the February blow-off top.
- Some analysts see this price action as a precursor to a macro bull run for XRP.
- While this may be true, the leading altcoin is printing some signs that it will reverse for a few days or weeks, then potentially it may head higher.
XRP Could Soon See Reversal: TD Sequential
XRP has been on a near-unstoppable rally over the past two weeks.
Even during last weekend’s flash crash, during which Ethereum crumpled by 26% in the span of five minutes, XRP was largely unfazed: it bounced back to multi-month highs just hours after the crash. Yet there is a textbook indicator printing a sell signal.
XRP is forming a “sell 9” candle on its daily chart, as per the Tom Demark Sequential. The sequential is a time-based indicator that prints “9” and “13” candles at the inflection points in the trend of an asset.
This “sell 9” candle that has formed on the chart of the altcoin predicts a multi-day correction.
Chart of XRP's price action over the past few months from TradingView.com
There are other signals and analysts predicting a retracement or at least a period of consolidation as XRP approaches critical resistance levels.
Cryptocurrency research firm Blockfyre published the chart below on August 3rd. It wrote that XRP is unlikely to break past the macro resistance at $0.33 at first go and will instead consolidate below this level, then potentially move higher:
“$XRP up 32% since the breakout of this downtrend and initial post but finds it self hurtling at light speed towards heavy resistance which should stall it for some time before continuation. Bulls looking for weekly close above .30-33.”
Chart of XRP's macro price action with analysis by Blockfyre and Pentoshi, head of TA at Blockfyre. Chart from TradingView.com
Ripple Releases Latest Market Update Report
The cryptocurrency’s recent price performance comes shortly after Ripple Labs revealed in its Q2 market report that it has been buying XRP on the secondary market. This comes after the company faced criticism from some corners of the industry who argued that Ripple was suppressing the asset’s price.
“A healthy, orderly XRP market is required to minimize cost and risk for customers, and Ripple plays a responsible role in the liquidity process. As more financial institutions leverage RippleNet’s ODL service, more liquidity is added into the XRP market. That said, Ripple has been a buyer in the secondary market and may continue to undertake purchases in the future at market prices,” wrote the company in the report.
Along with its purchases of the cryptocurrency on the open market, Ripple also sold $32.5 million worth of the asset over the counter over Q2.
Featured Image from Shutterstock Price tags: xrpusd, xrpbtc Charts from TradingView.com XRP Forms Crushing Textbook Reversal Sign After 30% Explosion
This Newly Formed Structure Could Cause Bitcoin to See Major Losses
- Bitcoin and the aggregated cryptocurrency market are currently in a precarious position following the series of strong rejections seen yesterday evening
- The selling pressure incurred as a result of these rejections has not yet been enough to force BTC or other assets below their crucial support levels
- That being said, analysts are growing increasingly cautious on BTC’s near-term outlook
- One trader explained that a recently emerged technical pattern seems to indicate downside is imminent
- It is important to note that there is one fundamental development that could invalidate this pattern
Bitcoin rallied up to highs of $11,500 overnight before facing an influx of selling pressure that slowed its ascent.
The cryptocurrency is now trading just above its crucial support at $11,000.
Although buyers have been in firm control of Bitcoin throughout the past few weeks, ever since it posted a rejection at $12,000, its momentum has been slowing.
This may indicate that it needs to undergo another consolidation phase before it can push higher.
One pattern resulting from this recent price action is quite bearish, suggesting that the benchmark crypto could be poised to see notable downside.
Bitcoin Struggles to Maintain Momentum as Selling Pressure Grows
At the time of writing, Bitcoin is trading down just over 1% at its current price of $11,100.
Buyers tried to spark a fresh leg higher yesterday, but only led BTC as high as $11,500 before it lost its strength and reeled lower.
This is the second firm rejection seen in the past several days – the first being BTC’s massive selloff seen when it tapped $12,000 on Saturday evening.
Analysts are now noting that the cryptocurrency could be well-positioned to see further near-term downside.
While speaking about this possibility, one trader said that the selloff recently seen at $12,000 is not “momentum to disregard.”
“I expected a stronger Monday session for BTC to be bullish, disappointing, it even dumped late Western session hours before the close. We dumped over 1’500$ [on] Sunday after tapping 12.2k, it’s not momentum to disregard, could very well be rolling in our faces.”
Image Courtesy of SalsaTekila. Chart via TradingView.
Here’s What Could Work to Invalidate This Weakness
Bitcoin is in a precarious position now, but the tides may quickly shift back into buyers’ favor in the coming days.
The same trader later noted that one development that could invalidate the sentiment he shared is a $120 million Tether mint that just took place.
He even went so far as to note that this fresh stablecoin supply could help propel BTC significantly higher.
“Closed my BTC short on 11,110$: woke up to a 120MM$ tether mint, which changes my [perspective] altogether: new highs much more likely just because of it IMO. Side lined for now.”
How Bitcoin trends throughout the coming couple of hours as its daily close approaches may provide investors with greater insight into its near-term trend.
Featured image from Unsplash. Charts from TradingView.
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