The cryptocurrency market is currently the most appealing, but also the most volatile financial market. For a few years, digital currencies have been a niche industry, but their recent value upsurge has lead them to evolve into a solid financial sector. This has led to the appearance of countless crypto funds. Up until 2017, there were less than 50 funds that invested in digital assets, but nowadays their numbers have grown to over 250. As such, digital currencies are now traded like any other asset, but the trading strategies can differ for each fund. Keep reading to discover how digital funds have evolved, and how investors can benefit from their evolution.
How financial funds are managed
Crypto funds are managed by asset managers. These are the people responsible for preserving and growing the wealth of the investors. The managers are the ones that decide what assets are to be bought, held or sold. They allocate cash to the investors to handle the asset classes. Obviously, they charge a fee for their services, which ranges between 0,1% and 2% of the assets. The products are sold institutionally, to pension funds or family offices, wholesale to wealth management services and financial advisers, and as retail through direct purchases.
How digital funds are managed
The management of digital funds is very similar to the management of all other funds. The funds are sold to investors to multiple channels, the main difference being that the focus is solely of cryptocurrencies. However, since the cryptocurrency market is still new, many fund managers are reluctant to enter this market on their own, which is why they rely on fund management services. For example, Stonegate, one of the most reputable global fund services offers a full range of services for cryptocurrency fund administration and fund formation. They handle the full regulatory spectrum, from the regulatory compliance, to the investor & shareholder services, the investor subscriptions as well as wallet services and support.
Advantages of investing in crypto funds
The potential of crypto currencies is undeniable. In a world run by technology, the transition from conventional to digital currencies is inevitable. Moreover, these currencies pose numerous other advantages, like the fact that they are impervious to inflation and any other type of governmental or corporative influence. However, for investors, the main question is whether or not it is worth handing over their crypto asset portfolios to fund managers and traders. Well, crypto funds have numerous advantages over independent investments.
- Expert advice for navigating a highly volatile market – as the prices can rise and drop significantly from one day to another, it pays to have a financial expert handle your portfolio.
- Regulatory compliance – For most cryptocurrencies, regulations are very vague, and sometimes there are no regulations at all for long periods of time.
- Easy trades – Digital trades are still changing and evolving. Dealing with sophisticated user interfaces and trading between several types of currencies can be a challenging and time-consuming process.
- Diverse investment portfolio – Since most cryptocurrencies have exorbitant values, it can be very hard for an independent investor to build a diverse portfolio. However, when you invest in a fund, your money is spread over a wide range of assets, which considerably lowers your investment risks.
Aside from the volatility of the crypto market, digital asset funds also have a few other risks that need to be considered.
- High impact on the main financial systems – The risks associated with the digital currencies can quickly spread into the main financial systems.
- Legality – The legality of crypto funds differs all over the world, and at the moment, it is quite hard to legalize these funds completely.
- Fees – As an independent investor you don’t pay any fees, whereas crypto fund can shave as much as 2% of your initial investment
As you can see, crypto funds are now a solid sector of the financial industry. Since crypto currencies are becoming widely accepted across the world, they could soon become interchangeable with fiat currencies. As such, any respectable investor needs to add some digital assets to their investment portfolios.