Making trades day after day requires you to have a lot passion, dedication and loads of energy in order to succeed and you need to stay awake to observe (and may be act on all) major market happenings -- every single one of them that matters. For instance, you need to do the analyses, find out who or which platform to trade on, and watch the market prices and news. That's why many people are choosing to automate various aspects of crypto trading and there are many ways you can do that even on many ordinary cryptocurrency trading platforms and exchanges apart from bot trading.
But there is another option: with cryptocurrency funds, you can participate in crypto investments and make it a lot easier to invest and get the profits. There also are many (and even types of) crypto funds that you can choose from and here a free guide/information and tips on choosing one:
Why consider a cryptocurrency fund?
A cryptocurrency fund will give you a better chance of diversifying (or investing in as many assets) in the cryptocurrency market and a right to share of winners in the trading. This is considerate since cryptocurrency is at its early stages and it is not possible to estimate which tokens will still be on top in future.
While they can be used by investors and traders to minimize risks of investing in cryptocurrencies by way of spreading the risks, they can present some certain level of risk due to legality issues. Also, you will need to hand over your crypto-assets to the portfolio managers and traders.
Types of crypto funds
There has been a rise in the number of crypto funds since the launching of the first one called Exante in Malta in 2013. Grayscale, which is a Bitcoin Investment Trust, was launched almost at the same time while Metastable (which manages more than $45 million in digital assets) was started in 2014. These together with Pantera, formed the largest crypto funds until later 2016 before the launch of Polychain Capital in 2016. Some of the new entrants are Galaxy Digital Assets.
Cryptocurrency funds are categorized based on their legal forms, capitalization, fundraising scheme, investment objective, investment strategy, and management style.
Some of the crypto funds are actively managed while others are passively managed. Still, others are a mix of classic real estate investing and others invest outside of the cryptoverse. Basically, passive funds tend to perform better than actively managed funds.
Also, most investors would want to diversify in a variety of funds just in case some are performing better than others or incase say something bad happens in a given fund. You can head to this link if looking for a list of crypto funds.
Crypto hedge funds
Mutual funds are public and highly regulated companies that can raise money from the public while hedge funds are more private in nature and can only raise money from accredited investors and not the public. Hedge funds are more flexible and can adapt to suitable strategies as they fit -- sell short, use derivatives & leverage etc -- and are less liquid since you cannot take back money at any time unlike mutual funds that provide daily liquidity.
And while mutual funds are required by law (and regulation depends on where they operate) to disclose holdings to investors from time to time, not so with hedge funds who can choose to or not do it. Most will share their strategies and returns and other information to investors as they deem fit to boost their publicity and investor numbers.
Both types of funds will usually change annual management fee, but other kinds of fees also vary: there could be entry fees, exit fees and performance fees.
More specific for cryptocurrency undertakings, cryptocurrency hedge funds are investment companies that invest in digital currencies and blockchain assets in order to generate high annual returns for investors. Hedge funds are only open to accredited investors and institutional investors.
Cryptocurrency Investment trusts
These enable accredited investors to buy digital currencies launched by Digital Currency Group-owned asset management company Grayscale Investments.
Digital asset investment platforms
These are investment platforms targeted at retail investors and enable private investors to invest in a range of digital assets and these funds are managed by cryptocurrency experts. Some funds are funded through initial coin offerings.
Example of these funds include Iconomi and TaaS.
Crypto Index Tracker Funds
An index is a group of securities representing a particular segment of the market and an individual token is usually introduced to serve this function. A cryptocurrency index fund is designed to track the returns of the market index.
These types of funds buy and hold a market capitalization weighted portfolio of leading cryptocurrencies and target both retail and accredited investors.
General categorization of the different types of funds.
Private verses public funds
Public fund categorization means the fund is listed on an exchange and shares are traded publicly unlike private ones that are not listed and shares are traded in a secondary market only. Thus many of hedge funds are private although some are public. Most mutual funds are public though some are private. Public mutual funds have their share only traded at the end of a trading day and usually via a broker.
Mutual funds also include the special types called exchange traded funds (ETFs) that invest in a basket of stocks (and crypto assets) and are traded on an exchange at any time like any other stock.
Private funds can become tokenized funds by issuing their own TSO (tokenized securities offering) and avoiding IPO. The equity shares or securities can thus be traded on a centralized and decentralized cryptocurrency exchange.
Open-ended verses close-ended funds
This categorization is based on the scheme. An open-ended fund is one that continuously issues new shares to new investors without a closed period limit to do so after starting. The fund also redeems shares for investors who are exiting it. On the other hand, a close-ended fund is one that sells shares at once to investors at the beginning of it and then a fund term during which the money is locked up.
Others include money market funds, bond funds (fixed income funds), public equity funds (or stock funds or simply equity funds), private equity funds, commodities funds, multi-currency or forex funds, cryptocurrency funds, utility token funds and tokenized securities funds, and real state funds.
Tips on selecting crypto funds
Which manner of trading?
All cryptocurrency funds make returns by doing profitable trades. They can either do manual trading and algorithmic trading. In manual trading, cryptocurrency funds will employ a variety of personal strategies, knowledge, experience, and intuition in order to determine which coins they can buy and trade to make the most of the trades.
In algorithmic or auto trading, a trader defines a trading algorithm on a computer and this program executes trade on his/her behalf using real time market data when the conditions are met. That means cryptocurrency markets will also be crowded with trading bots like the stock market trading that comprise of 90 percent of trading.
Nevertheless, experts in the fund that uses algorithmic trading will still need to determine which cryptocurrency assets are more appropriate to invest in on a long-term or short-term growth. However, success of algorithmic trading relies more on selecting the right patterns.
Some funds such as Pentafund and Token-as-a-Service use both manual and algorithmic trading and this can be very good, because each of the trading has its own advantages and disadvantages.
Many funds, whether using algorithmic or manual trading, do use their own technical analysis techniques like scalping, intraday, swing, trend, and counter-trend styles to deliver returns to its investors. Such analyses also make use of various indicators including conference announcements, forks, as well as new coin listings, technology patents, user base, size of network, and token utility.
These techniques help them to determine predictable patterns of trading in order to estimate what trades might get profit, when and how much they might garner.
Selecting between venture and index funds
Venture-styled funds rely on identifying and picking the companies with good/best/highest/high potential to grow in emerging markets in order to reap profits when the price increases. An example of such a fund is BlockTower Capital. This comes with a bit of a higher risk for investors.
Some venture-styled funds offer exposure to other kinds of assets apart from cryptocurrencies so an investor can consider these too at the same time they consider cryptocurrency funds.
On the other hand are index funds that are very low-risk investments that identify top crypto assets they can invest in such that even if some might perform poorly, a price increase in others will cover the loses. A trend is for a fund to track and invest in 10 or 20 coins with the largest market caps. Examples include Crypto20 and Bitwise. The fees for maintaining an index fund that can as low as 0.5%.
The good side of investing in an index fund is that you might not need to understand ins and outs of the various assets whenever you want to invest in these kinds of funds. Secondly, they are a good choice if you do not want to worry about storage and custody of tokens. They also provide an easy, diversified and auto-rebalancing way of investing in cryptocurrencies. Also, they offer a broader market exposure with low operating expenses and low portfolio turnover.
Crypto index funds will not be an exciting investment opportunity for professional traders and power players in crypto industry, but these funds are more appropriate and attractive for new entrants into the space.
Some of the crypto index funds include Bittwenty, passively-managed Coinbase Index Fund, Crypto20 which uses the C20 token, Bitwise, Iconomi – BLX, AgreCoin, Astronaut Capital, Symmetry Fund, and Digital Developers Fund.
Mining verses ICO investing
Apart from funds that zero in on trading cryptocurrencies, some funds invest either or both cryptocurrency mining and ICO investing. Nevertheless, most funds specialize in mining or ICO investing and not both and therefore, you might need to choose which best way to go.
An example of a crypto mining funds that brings miners and investors together is Logos Fund. The amount of funds gotten from investors is used to buy infrastructure and technology behind cryptocurrency mining including warehouses, power sources, and computers.
The profits acquired when the new cryptocurrencies are sold are shared among the investors and miners. Many funds also do buy tokens during initial coin offering and these are sold later with returns when the value of the coin grows. The profits are then shared among investors who provided the capital to purchase the tokens during ICOs.
Although projects have highest risk and rate of failure during ICOs, ICOs are still very profitable many times compared to mining.
Buy and hold verses arbitrage
Funds using the buy and hold strategy will simply buy and hold cryptocurrency for long term benefits to sell at a higher price than at what the currency was bought.
Arbitrage refers to where a person or a fund buys cryptocurrencies with the aim of holding it for a little while and then selling it on a different crypto exchange. They profit from price differences on the two crypto exchanges. Usually, crypto prices differ from one exchange to another. In cryptocurrencies, the differences in prices are usually significant compared to the more efficient stock and foreign exchange markets. Arbitrage has a lower risk than the buy and hold which also takes time waiting for price increases.
An example of crypto fund that uses arbitrage to trade digital assets include Virgil Capital.
Some crypto funds will utilize these two types of strategies: arbitrage and buy and hold. An example of cryptocurrency funds using the two strategies include Pentafund. With this type of fund, profits are expected for trading cryptocurrencies on short term (arbitrage) and longer term profits for buying and holding.
Autonomous ecosystems as investment vehicles
The autonomous ecosystems are also relatively new and are coming up in order to support crypto funds because they can deal with the disadvantages of crypto funds. For instance, using these investment vehicles, fund managers and traders can create their own tokenized portfolio of digital assets while investors can use them to discover crypto-funds and purchase their tokens.
Examples of these include The Token Fund and Iconomi. Iconomi allows managers to create the Digital Asset Arrays (DAA) which is analogous to Exchange Traded Funds (ETFs) while investors can use the platform to invest in DAAs by purchasing their tokens. Like other funds, they eliminate or remove technical barriers for creating and managing crypto-funds.