Cryptocurrency mutual fund
An investment fund aimed at attracting “mass” investors’ funds is often called a mutual fund. The main advantages of such funds are:
- The need for creation of a legal entity which can be troublesome in many countries;
- “Low” entry threshold: minimal investment starts from couple dozens of dollars or even lower;
- Equal rights to the fund’s property, accounted for by an independent organization.
What is cryptocurrency mutual fund?
The fund arises “under the aegis” of an investment company or a financial organization that manages existing customers assets. Well-organized fund-raising in the form of shares sale: the company invests proportionally in the current model portfolios consisting of market instruments. The investment profit / loss received according to the results of the quarter (year or month) is divided proportionally, increasing or decreasing the value of the share.
Mutual funds are an opportunity to make a profit without having any experience in investments above fixed in traditional instruments: deposits and bonds. All that is required from the user is to choose a management company based on the rating and the type of investments from the industrial or financial sector, “reliability” of fixed instruments or something else, guided by one’s own considerations.
Investment mutual funds operate in the following spheres: bonds, loans, mortgage loans, securities, raw materials, various indexes (markets, industrial sectors or independently compiled), as well as cryptocurrency. By the way, to not lose in picking what to invest in, look at most promising cryptocurrencies of 2018.
The first cryptocurrency mutual funds were organized on the index principle. The share was tightly tied to the exchange rate of the major digital currencies Bitcoin or Ethereum. Rapid growth of this market in 2017 led to the popularization of investing in digital assets. And – to increasing competition in the investment segment. To stop outflow of customers starting to invest independently, cryptocurrency mutual funds began to create more complex portfolios, diversified by altcoins.
The catastrophic market drop in late 2017 and early 2018 was the “moment of truth” for digital asset management models. Many units fell by more than 50%, which led to their mass sale and outflow of customers.
Hybrid funds turned out to be quite resilient to negative situation. Some of them managed to maintain the growth trend of the share. Investments in cryptocurrencies there are widely diversified. By venture investments in ICO tokens or shares of start-ups developing blockchain technologies.
How is the investment in digital funds realized?
Cryptocurrency investment funds have chosen ICOs, on which future investors purchase tokens as the placement of the share. They are associated with the investment fund’s own cryptocurrency, and additional income can be paid in the form of dividends. The token’s is determined either on the company’s website or on the exchange. If the client does not need fund’s services anymore, he sells his share at the current market rate directly to the company that is obliged to buy it.
Investors taking part in the ICO have advantages in the form of discounts on tokens, others can participate in investments after launching the startup only by buying a share on the stock exchange. At the same time, the fund’s currency value may outstrip the effectiveness of the management due to the limited emission and popularity of the fund.
Some brokers trading in cryptocurrency make up their own indexes, consisting of a certain percentage of several cryptocurrencies. In this case, the share is determined by a strict proportion, and investments are made in a fiat currency.
Legal regulation of cryptocurrency mutual funds
From a legal standpoint, a share is a security provided by an investment portfolio of financial or commodity instruments. Investment companies that accept such deposits are subject to supervision of central banks or authorized government agencies controlling the exchanges. In foreign markets, they are indicated by the ETF marking, their shares are traded on world and national platforms.
Attempts to register the ETF associated with cryptocurrencies are being pursued for two years in a row, but had not lead to any positive result. Some of developed countries phohibit cryptocurrency mutual funds.
How to choose the right investment fund?
Cryptocurrencies “erase” borders, in many cases, in order to purchase a fund share connected with digital currencies, it is enough to open a purse and provide your email address. On the other hand, the simplicity of the deposit has disadvantages – the anonymity of transactions will allow unscrupulous managers to disappear together with the collected money of investors. The lack of legislative protection may help such a manager.
When choosing a fund, one should rely company’s reputation and personalities who organized fundraising for investing in digital assets.
Reputation in this sphere is directly related to the one’s success and profitability of the strategy in previous projejcts. Do not trust investments to “newcomers” with a dubious semi-official past, as trading and the forecast of the markets are very complicated, and cryptocurrency market is a phenomenon on it’s own.
Wall Street financiers who came from famous hedge funds opened many digital funds in 2017. To choose a candidate it is enough to follow the news or open lists of Top-500 personalities of the crypto world and find there the names of investment companies owners.
Each company orients on a specific market’s segment or individual coins, so study declared strategy thoroughly before investing. If the investment is reduced to the purchase and holding of one or more cryptocurrencies, think is such “management” really necessary and what prevents you from doing that yourself?
Pay attention to “transparency”, mandatory trading reports and choose managers offering diversified investments in Bitcoin and altcoins with an active methodology that provides elements of hedging and rebalancing.
ICO-focused bring four-digit profits, but they are quite risky. Take this as a venture investment – invest a little but prepare yourself for losses.
Companies offering a variety of additional services, including a portfolio selection at the discretion of the client, referral programs, investment high fixed interest rates – are a scam. The mutual fund is created for simple investments, where everything ends with the choice of the direction of funds investment and payment of a share. Earning profit and finding the right tools is the portfolio managers’ job.
Hybrid investments with the mix of cryptocurrencies and shares of blockchain technology companies are the ideal option. Judging by the fact that money of legendary George Soros and Warren Buffett came to this industry, the purchase of such funds shares will be the best diversification of investments.
ETF funds are required to issue shares as securities, which gives regulators the right to automatically recognize such tokens of companies oriented to the cryptocurrency market. The US and other developed countries impose bans on distribution of any digital currencies with signs of shares.
Such bans concern not only newly created start-ups, but also companies that have been working with cryptocurrencies for many years. Usually, after the ban, they return money to investors. But tokens that are in trade on the exchanges will rapidly depreciate after the information on the project’s closure.
This can be avoided by selecting the fund in offshore jurisdiction, but this is a “deferred risk” for two reasons:
- The struggle with digital currencies goes to the international level, which will make certain regulations binding on all countries;
- Pressure on cryptoexchanges makes them get rid of tokens with signs of securities, unexpected delisting can affect the share’s value.
Statistics and Prospects
According to data, the market’s drop did not prevent the growth of investments in crypto-currency mutual funds. In 2017 portfolio of an average company amounted to tens of millions of dollars. The reports of the first month of 2018 indicate its tenfold increase.
In terms of legislation, many influential investors are trying to find a compromise with government officials in order to register the ETF. Many people from Wall Street comply with the rules and regulations for investing in digital currencies, analogous with the securities and derivatives markets. So the transition from an illegal position to state regulation will become a formality for many companies.
There is a hope that the official resolution of digital EFT issue will come this year. Judging by the efforts of big investment banks to create digital assets management platforms. E.g. as Morgan Stanley, Goldman Sachs and other major global financial corporations.
List of Top cryptocurrency mutual funds
- PanteraCapital.com is a cryptocurrency hybrid fund, headed by the recognized analyst Dan Morehead. He predicted the highs and New Year’s cryptocurrency correction.
- Satoshi.Fund is a family of cryptocurrency mutual funds, the most famous of which is Satoshi Pie, with a rate of return 1000% per annum.
- GABI (coinshares.co.uk) – the abbreviation of one of the first Bitcoin-focused mutual funds.
- BitcoinsReserve.com is the first arbitration investment fund that earns on the exchange difference the cryptocurrency formed due to the different liquidity of the exchanges.
- BinaryFin.com – a hybrid fund with diversified strategies: trading, arbitration, investments in the ASIC-miners production.
- Blockchain.Capital is a company that invests in the fintech and blockchain start-ups.
- The Token Fund (thetoken.io) is a mutual trust on decentralized smart contracts with an “automatic system” of trust management.
- ICONOMI.net is a unitary decentralized fund that uses its own crypto currency and the ability to create custom model portfolios.
- Prism.exchange is a decentralized platform created by the famous ShapeShift project for creating custom mutual funds based on Ethereum smart contracts.
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