In 2021, cryptocurrency funds reached $73 billion in assets under management, which is three times more than the year before. Let’s understand what cryptocurrency funds are and why investors prefer them over buying cryptocurrencies directly. You can buy cryptocurrency directly at Alligat0r.com.Â
What are cryptocurrency funds?
Many people remember 2017 when cryptocurrencies went up more than 10 times. This “make money fast and big” frenzy was a major factor in the emergence of investment funds.
Cryptocurrency funds are funds that invest in cryptocurrencies or in baskets of different cryptocurrency assets. The main objective is to safely manage assets and maximize investor returns. There are funds with a high entry threshold for large investors and those with a low threshold for retail investors.
Why don’t investors want to buy assets directly? In many countries, it is not possible to buy cryptocurrency on exchanges. That requires funds to help pay taxes and keep records.
The funds have experienced managers and executives. They take care of everything, from news monitoring to asset management. All the investor has to do is sign the contract, make a deposit, and wait for the fund to end.
Two types of funds are available:
- Closed-end funds. Only qualified investors work with them. These are the largest funds on the market, accumulating hundreds of billions of dollars.
- Open-end retail investors can work with them. They are unregulated and available as fund shares or ETFs.
By classification, crypto funds are divided into:
- Venture Capital. Such funds invest in blockchain and cryptocurrency companies. Retail investors can not work with them.
- Hedge funds. These make money only on the rise or fall of cryptocurrencies. Their shares are not listed on stock exchanges. U.S. hedge funds mostly work with qualified investors with more than $5 million in capital.
- ETF funds. Shares are traded on stock exchanges. The fund purchases cryptocurrencies and then sells their shares as securities through intermediary brokers.
The funds charge a commission of 5% to 20% for asset management. Moreover, assets cannot be withdrawn before the set deadline (although there are exceptions).
The total number of cryptocurrency funds
As for profitability, everything depends on the market. If in 2017, the average yield was 1700%, in 2021 it would be 120%.
According to analysts at Crypto Fund Research, there were 290 funds launched in 2017, 284 in 2018, 101 in 2019, and only 100 in 2020, despite the bitcoin rally. But the volume of investments in funds has grown tenfold. The potential for growth is enormous. Currently, crypto funds account for 1.5% of all existing $3.8 trillion hedge funds, implying that the potential for growth is enormous.
The vast majority of funds manage small capital — no more than $20 million. Only 40 funds have asset portfolios of more than $100 million. The average size of investments in crypto funds is $146,000.
To summarize
Cryptocurrency funds are an important element of the market infrastructure. They act as an intermediary between investors and cryptocurrencies. There is a real maturation of the industry in front of us. You can exchange AST to BTC to invest in your savings and earn on them. The more such funds there are, the more developed the cryptocurrency sector will become.
