The crypto sphere attracts investors with large and fast gains through the active development of this industry. However, not everyone has the time or is interested in exploring an unfamiliar market. But you can invest in crypto-currency by entrusting your funds to professionals. In this article, we will take a closer look at what hedge funds are and their benefits.
Hedge funds are the largest institutional participants of the world stock markets. First of all, crypto-currency hedge funds are designed for those who want to take part in the crypto activity but are not ready to deepen into this sphere and worry about market fluctuations. In this regard, funds working with digital currencies are similar to traditional funds. Crypto-currency managers guarantee to take care of everything, including following the news background, selecting assets, and considering portfolio balance. Managers usually prioritize assets that they believe would create the most profit potential. From this point of view, hedge fund managers should be advanced experts in this field to assess all the risks and make predictions regarding price movements.
Hedge funds have been around for over 70 years in global investment practice. Ray Dalio and Warren Buffett are the most famous global funds considered the etalon for investors. Thus, their investment performance sometimes serves as a benchmark for others. The first hedge funds were established in 2012, but their number expanded to only a few hundred over the next few years. When the crypto craze swept millions of people in 2017, the segment experienced explosive growth. Within a year, more than a hundred new hedge funds were established because of professional investors taking a closer look at the growth industry. Among the largest funds that have existed for more than a year, we can name MetaStable, Bitcoin Investment Trust, BlockTower, Multicoin Capital, Polychain.
There are also many classifications of crypto hedge funds. We will focus on the two main ones. According to investor access, hedge funds can be divided into closed-end when only qualified investors can buy their shares. These are the largest funds on the market, accumulating tens of billions of dollars. Open-end funds are available to retail investors. Such funds may be unregulated (when the investor buys shares of the fund) and regulated or exchange-traded (ETF) (when the fund’s shares may be traded on the stock exchange). Traditional hedge funds usually use active trading strategies, i.e., buying and selling cryptos over short periods, to profit from market fluctuations. However, according to CoinShares, most money is currently invested in passively managed crypto funds.
Furthermore, the major distinguishing feature of typical hedge funds remains: you cannot withdraw your money before the end of the investment period. This policy serves as a protection tool for the investors, so there is a need to evaluate all the factors carefully. Also, another difference between crypto and traditional funds is the first ones are usually private. The crypto market is still developing, and there are no legal regulations for crypto-currency companies in many countries. In some states, crypto assets are banned, and somewhere it is gradually coming to the state level. When choosing a crypto fund, consider the laws of your country.
In conclusion, the frenzy surrounding crypto-currencies and their phenomenal gains in 2016–2017 was a crucial driver in the establishment of crypto hedge funds. Nowadays, new hedge organizations appear every day but it is still important to assess a fund’s reputation before entrusting it with your money. The more transparent the fund and its activities, the better it is for investors. From our point of view, everybody should make their own choice regarding investments, based on experience and personal preferences. And remember, there are no reliable funds since no one can guarantee 100% of profits on the crypto-currency market.
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Valentina BEREZA, Team bit4you