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The Rise of the Crypto Hedge Fund
Hedge funds have long been a popular choice for risk-averse investors, relying on the fund’s visionary founder and teams of analysts to guide their money in the right direction. Be led by Ray DalioWhether it’s George Soros or another famous tycoon, the best funds are constantly looking for the next edge, even if they’ve already outperformed the market every year. With the rise of cryptocurrencies like Bitcoin, they may finally have found it. Timing, however, is crucial.
Bitcoin’s massive percentage growth, even in the face of extreme stress tests, has legitimized it in the eyes of investors everywhere. Accessible infrastructure makes blockchain transactions easy, and people can exchange cryptocurrencies for fiat currency – opening the waters to the big fish.
This has created the perfect entry point for hedge funds. Giant, influential funds see a comparatively small-volume asset like Bitcoin (which recently hit $100 billion in market cap) more demand from the investing population, and have finally taken the plunge. New funds are also emerging. This development has been met with both consternation and praise in the crypto community, but one thing is certain: the returns so far have been amazing.
What is a cryptocurrency hedge fund?
Unlike a cryptocurrency index fund, ETF, or exchange, a hedge fund is a different way for an individual to invest in a large group of underlying securities. They are managed by teams of expert investors, rebalanced occasionally, and analyzed endlessly. Investors profit from the market maneuvers of these experts. There are currently two types of cryptocurrency hedge funds. Those that manage portfolios that contain exclusively cryptocurrency, and those that add some cryptocurrency to a mix of other asset types.
The first type of hedge fund seeks to maximize returns by adding new coin offerings (ICOs) to the mix, to replicate the 82,000% returns that the Ethereum ICO achieved, for example. The latter are undoubtedly more risk-averse, but they are less profitable given the cryptocurrency’s stellar rise.
(For related reading, see: Why aren’t hedge funds interested in Bitcoin?)
Who can benefit?
Those who wish to participate in the growth of Bitcoin, for example, can create an account on eToro Crypto Fund. This hedge fund platform allows individuals to invest in a carefully selected mix of cryptocurrencies, such as the Crypto CopyFund. This fund provides investors with 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 adopting crypto-centric investment strategies are still ahead of the curve. Many believe that owning a portfolio of stablecoins based on high-volume blockchains is a smart move and a great setup for a healthy financial future. So far, they’ve been right, and the past decade has proven that weak hands sell at their own peril.
While no one can predict the future value of cryptocurrencies, the past few years have been a testament to the concept. What’s more, they’ve proven 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 don’t want full exposure to the young (and often volatile) market, will find a perfect compromise in a safe crypto hedge fund.
(For related reading, see: The 6 Most Important Cryptocurrencies Besides Bitcoin)
How Traditional Hedge Funds See It
Bitcoin remains a small percentage of the hedge fund industry, but even the oldest and most established funds can see what’s coming. Efforts to bring emerging markets into the 21st century are slow, but the rise of crypto has made staying even harder. Many millennials now prefer “unbanked” themselves and keep their funds on a cryptocurrency exchange instead of a bank account. This trend has forced institutions to consider cryptocurrency as part of their business model.
Although keeping money exclusively in exchanges is dangerous, due to disasters such as Mount GoxIt establishes hedge funds as a 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 in operation today, and 25 more set to land in the coming years, ready to help create the next generation of “crypto millionaires.”