Crypto Fund Investment: Getting Started And Strategies

Cryptocurrency is an increasingly popular investment option, but it can be a complicated and volatile choice for retail investors. One way to invest in cryptocurrencies is through a crypto fund, which can offer a more familiar and convenient way to access the market. Crypto funds pool investor money to invest in various crypto assets, providing a diverse portfolio in a single investment. These funds can offer potential tax advantages and are professionally managed, but it's important to note that they also come with fees and may not entirely shield investors from the volatility of the crypto market. The regulatory landscape for crypto funds is also important to consider, as it varies across jurisdictions and is subject to change. Before investing, it's crucial to conduct thorough research and carefully evaluate the risks and potential rewards.

Crypto mutual funds vs ETFs

Crypto mutual funds and crypto ETFs are both professionally managed collections or "baskets" of individual stocks or bonds. They are similar in many ways, but there are some key differences that make one better suited than the other concerning an investor's investment goals.

Similarities

Crypto mutual funds and crypto ETFs both:

• Offer built-in diversification
• Give access to a wide variety of U.S. and international stocks and bonds
• Are overseen by professional portfolio managers

Differences

Minimum Investment

Crypto mutual funds usually have a higher minimum investment requirement than crypto ETFs. While there are funds with no minimum investment, a typical retail fund requires a minimum investment of between $500 and $5,000. Crypto ETFs, on the other hand, can be bought for as little as the cost of one share.

Trading

Crypto ETFs trade on exchanges just like common stocks. They can be bought and sold just like stocks, while crypto mutual funds can only be purchased at the end of each trading day based on a calculated price known as the net asset value. Crypto ETFs are therefore a better choice for active traders.

Management

Most crypto mutual funds are actively managed, meaning fund managers make decisions about how to allocate assets in the fund. Crypto ETFs are usually passively managed, tracking market indexes or specific sector indexes. However, that distinction has become blurred, as passive index funds make up a significant proportion of crypto mutual funds' assets under management, while there is a growing range of actively managed crypto ETFs available to investors.

Fees

Actively managed funds tend to have higher fees and higher expense ratios due to their higher operations and trading costs. Crypto ETFs are usually passively managed, so they are often cheaper than crypto mutual funds.

Taxation

Investors in crypto ETFs and crypto mutual funds are taxed based on the gains and losses incurred within the portfolios. Crypto ETFs engage in less internal trading, and less trading creates fewer taxable events.

Both crypto mutual funds and crypto ETFs are good options for investors but have some key differences that make one better suited than the other concerning an investor's investment goals. Crypto ETFs are generally more liquid and cost-effective, while crypto mutual funds offer active management and greater regulatory oversight.

Crypto hedge funds

Some crypto hedge funds solely invest in crypto projects, while others diversify their portfolios by investing in stocks, forex, and commodities. These funds often employ high-risk investment strategies such as leverage, short-selling, and speculative financial instruments.

• Pantera Capital
• BH Digital (Brevan Howard Asset Management)
• Multicoin Capital
• Wave Digital Assets
• Morgan Creek Digital (Morgan Creek Capital Management)
• Systematic Alpha Cryptocurrency Arbitrage Master Fund
• Off The Chain Capital
• Pythagoras Investment Management
• BitBull Capital
• BlockTower Capital

Investing in crypto hedge funds offers several advantages, including diversification, liquidity, and the potential for significant returns due to the volatility of cryptocurrencies. However, there are also challenges, such as market volatility, lack of regulation, operational risks, high fees, and limited accessibility.

Crypto-adjacent funds

• Amplify Transformational Data Sharing ETF (BLOK): This fund invests in businesses involved in blockchain technology, which powers cryptocurrencies. It has an expense ratio of 0.71%.
• Reality Shares Nasdaq NexGen Economy ETF (BLCN): This fund aims to invest in companies that develop, research, or utilize blockchain technology. It has an expense ratio of 0.68%.
• ProShares Bitcoin Strategy ETF (BITO): This is a Bitcoin-focused ETF that owns Bitcoin futures contracts.
• Valkyrie Bitcoin Strategy ETF (BTF): Another Bitcoin-focused ETF with an expense ratio of 0.95%.
• VanEck Bitcoin Strategy ETF (XBTF): A Bitcoin ETF with an expense ratio of 0.95%.
• Global X Blockchain & Bitcoin Strategy ETF (BITS): This ETF focuses on blockchain and Bitcoin.

When investing in crypto-adjacent funds, it's important to consider the fees and underlying investments, as these can vary between funds. Additionally, keep in mind that these funds may not deliver the same returns as direct investments in cryptocurrencies.

Crypto trusts

Grayscale is one of the largest companies offering cryptocurrency trusts, including the Grayscale Bitcoin Trust (OTC: GBTC), which tracks the performance of Bitcoin, and the Grayscale Ethereum Trust (OTC: ETHE), which tracks the performance of Ethereum. These trusts charge annual fees of 2% to 2.5%convenience and potential tax advantages for retirement accounts.

Another example of a crypto trust is the Bitwise 10 Crypto Index Fund, which tracks the performance of the 10 largest investable cryptocurrencies by market capitalisation. This fund has a high expense ratio of 2.5%, which includes management fees, custody charges, and other expenses.

Investing in crypto trusts can provide investors with a convenient and diversified way to gain exposure to the cryptocurrency market without having to directly purchase and hold the underlying assets. However, it is important to consider the fees and expenses associated with these trusts, as they can impact the overall returns on investments.

Crypto ETFs

One of the key advantages of crypto ETFs is that they provide investors with a diversified portfolio of crypto assets in a single investment. This helps to reduce the risk associated with investing in a single cryptocurrency, as the performance of the fund is not solely dependent on the price movement of one coin. Crypto ETFs also offer professional management, making them more accessible to investors who may not have the time or expertise to actively manage their crypto investments.

When choosing a crypto ETF, it is important to consider the fund's investment strategy, fees, and underlying assets. Some crypto ETFs focus solely on investing in a single cryptocurrency, such as Bitcoin, while others offer a more diversified approach by investing in a basket of cryptocurrencies or a combination of crypto assets and crypto-related companies. It is also essential to understand the risks involved, as the cryptocurrency market is highly volatile and subject to significant price fluctuations.

Overall, crypto ETFs provide a regulated and relatively accessible way to gain exposure to the cryptocurrency market. They offer diversification, professional management, and the potential for higher returns, making them a popular choice for investors looking to add crypto to their portfolios.

Frequently asked questions