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The Rise of the Crypto Hedge Fund
Hedge funds have long been a popular choice for risk-averse investors, who rely on the fund’s visionary founder and analyst teams to steer their money in the right direction. Whether they are led by Dalio RayGeorge Soros or another famous tycoon, the best funds are constantly looking for the next limit, even if they already beat the market every year. With the rise of cryptocurrencies like Bitcoin, they may have finally found it. However, timing is of the essence.
Bitcoin’s massive percentage growth, even in the face of extreme stress tests, has legitimized it in the eyes of investors everywhere. The accessible infrastructure makes blockchain transactions easy, and people can exchange cryptocurrencies for fiat, opening the waters for the big fish.
This has created the perfect entry point for hedge funds. The giant and influential funds see a relatively small volume asset like Bitcoin (which recently hit a market cap of $100 billion), plus demand among the investor population, and have finally taken the plunge. New funds are also emerging. This development has been met with both consternation and praise in the cryptocurrency community, but one thing is for sure: the returns so far have been amazing.
What is a Crypto Hedge Fund?
Unlike a cryptocurrency index fund, ETF, or exchange, a hedge fund is a different way for a person to invest in a large group of underlying securities. These are managed by teams of expert investors, rebalanced from time to time, and analyzed endlessly. Investors profit from the market maneuvers of these experts. Currently, there are two types of cryptocurrency hedge funds. Those that manage portfolios containing only cryptocurrency and those that have added some cryptocurrencies to a mix of other types of assets.
The first type of hedge fund seeks to maximize returns by adding newly offered (ICO) coins to the mix, to replicate the 82.000% returns that Ethereum’s ICO achieved, for example. The latter are presumably more risk-averse, but are less profitable, given the cryptocurrency’s stellar growth.
(For related reading, see: Why are hedge funds not interested in Bitcoin?)
Who can benefit from it?
Anyone who wants to participate in the growth of Bitcoin, for example, can create an account with eToro Crypto FundThis hedge fund platform allows individuals to invest in a carefully selected mix of cryptocurrencies as Crypto CopyFund. This fund offers investors the ability to mirror the market movements of Bitcoin and other established coins such as Ethereum, Ripple, and Dash.
While early crypto buyers are already millionaires, those who are just adopting crypto-focused investment strategies are still a step ahead. Many believe that having a portfolio of stable, high-volume blockchain-based cryptocurrencies is a smart move and a great set up for a healthy financial future. So far, they have been right, and the last decade has proven that weak hands sell at their own risk.
While no one can predict the future value of cryptocurrencies, the last few years have supported the concept. They have also shown that people are willing to invest, which is a positive sign for continued price growth. Investors who believe in the technology and are willing to use their money accordingly, but do not want full exposure to the young (and often volatile) market, will find a safe cryptocurrency hedge fund to be a perfect compromise.
(For related reading, see: Top 6 Cryptocurrencies Besides Bitcoin)
How traditional hedge funds see it
Bitcoin remains a small percentage of the hedge fund industry, but even older, more established funds can see what’s coming. Efforts to bring emerging markets into the 21st century are slow, but the rise of cryptocurrencies has made it even harder to stay put. Many millennials now prefer “don’t bank” themselves and keep their funds on a cryptocurrency exchange rather than in a bank account. This trend has forced institutions to consider cryptocurrency as part of their business model.
While it is dangerous to keep money exclusively on exchanges, given disasters such as Mount Goxestablishes hedge funds as the perfect middle ground between this lawless crypto world and the suit-and-tie banking experience. According to Hedge Fund Alert, there are over 15 digital currency funds active today, with another 25 on the way in the next few years, ready to help create the next generation of “crypto millionaires.”