Explore Crypto Investment Funds: Your Guide To Getting Started

Cryptocurrency funds are a new type of investment vehicle, similar to mutual funds or ETFs, that have emerged since the launch of the first bitcoin fund in 2013. These funds contain a portfolio of digital tokens and cryptos instead of stocks, indices, or commodities. As of 2024, there are over 840 cryptocurrency funds, with a total AUM of $58.9 billion. The largest crypto asset manager is Grayscale, with over $20 billion in AUM. Other notable crypto funds include Pantera Bitcoin Fund, a16z, and CoinShares. These funds provide investors with exposure to a diverse range of cryptocurrencies and blockchain technologies.

Crypto funds vs. crypto stocks

When considering investing in cryptocurrencies, it is important to understand the differences between crypto funds and crypto stocks. Both have their unique characteristics, risks, and potential rewards. Here is a detailed comparison to help you understand the key distinctions between crypto funds and crypto stocks:

Crypto Funds

Crypto funds, also known as cryptocurrency funds, are investment funds that focus specifically on cryptocurrencies. These funds pool money from multiple investors and use it to invest in a variety of cryptocurrencies. Crypto funds are typically managed by professional fund managers who have expertise in the cryptocurrency market. Some key features of crypto funds include:

• Diversification: Crypto funds often invest in a diverse range of cryptocurrencies, reducing the risk associated with investing in a single coin.
• Active Management: Fund managers actively monitor the market and make investment decisions on behalf of the investors.
• Accessibility: Crypto funds offer an easy way for investors to gain exposure to the cryptocurrency market without having to research and select individual coins.
• Risk Mitigation: By diversifying their investments and employing risk management strategies, crypto funds aim to mitigate the inherent volatility of the cryptocurrency market.
• Fees: Investing in crypto funds typically involves paying management fees and other associated costs, which can impact overall returns.

Crypto Stocks

Crypto stocks refer to stocks or shares of companies that are directly or indirectly involved in the cryptocurrency and blockchain industry. These companies may include cryptocurrency exchanges, blockchain technology developers, or businesses that hold significant amounts of cryptocurrencies on their balance sheets. Some key features of crypto stocks include:

• Ownership: When you invest in crypto stocks, you become a shareholder of the company and have partial ownership of its assets and operations.
• Dividends: Some companies may pay dividends to their shareholders, providing a steady income stream in addition to potential capital gains.
• Regulation: Crypto stocks are subject to the same regulatory frameworks as traditional stocks, providing greater transparency and investor protection.
• Company Performance: The value of crypto stocks is influenced by the financial performance, growth prospects, and business decisions of the underlying company.
• Industry Exposure: Investing in crypto stocks allows you to gain exposure to the growth and development of the cryptocurrency and blockchain industry.

Comparison

Now, let's compare crypto funds and crypto stocks across several dimensions:

• Volatility: Crypto funds, by diversifying their investments, may offer relatively lower volatility compared to investing in individual crypto stocks, which can be more susceptible to price swings.
• Risk and Return: Both crypto funds and crypto stocks carry risks, but the potential for higher returns also exists due to the volatile nature of the cryptocurrency market.
• Regulation: Crypto funds operate in a less regulated environment compared to crypto stocks, which are subject to the same regulations as traditional stocks.
• Investment Horizon: Crypto funds are more suitable for long-term investors who want exposure to the overall growth of the cryptocurrency market. Crypto stocks may offer more flexibility in terms of investment horizons.
• Fees and Costs: Crypto funds typically involve management fees, while trading crypto stocks may incur brokerage fees or transaction costs.

In conclusion, the choice between investing in crypto funds or crypto stocks depends on your investment goals, risk tolerance, and time horizon. Crypto funds offer diversification and professional management, while crypto stocks provide ownership and the potential for dividends. Both options carry risks and potential rewards, so it is essential to conduct thorough research and understand the dynamics of the cryptocurrency market before making any investment decisions.

Crypto funds and regulatory compliance

Crypto funds have been available to investors since the launch of the first bitcoin fund in 2013. As of January 2024, there are over 840 cryptocurrency funds, with the market expected to continue growing. The exponential growth of the crypto fund market is attributed to the mainstream recognition and acceptance of cryptocurrencies after 2020.

However, the lack of regulatory guidance in the crypto space has created challenges for compliance officers in the industry. While several US regulatory and law enforcement agencies, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have pursued enforcement actions, these efforts have often lacked coordination and clear direction.

To address these challenges, crypto compliance officers need to have a comprehensive understanding of blockchain technology and its underlying risks. Implementing robust anti-money laundering (AML) programs and ensuring proper customer due diligence are essential to mitigate regulatory scrutiny and potential exploitation by bad actors.

Additionally, crypto-involved companies should adopt rigorous retention policies and conduct thorough third-party due diligence to manage their compliance risks effectively. By taking these proactive measures, crypto companies can build robust compliance programs that meet regulatory expectations and protect their customers' interests.

• Licensing and Registration: Crypto asset service providers delivering critical functions, such as storage, transfer, exchange, settlement, and custody services, should be licensed, registered, and authorized by relevant authorities.
• Prudential Requirements: Entities carrying out multiple functions, such as exchanges, wallets, and market-making services, should be subject to additional prudential requirements to protect customer assets and reduce risks.
• Stablecoin Regulation: Strict prudential requirements should be imposed on stablecoin issuers, with central banks taking the lead. Stablecoins have the potential to become widely used payment instruments and pose risks to monetary and financial stability if not properly regulated.
• Regulated Financial Institutions' Exposure: Clear requirements should be established for regulated financial institutions regarding their exposure to and engagement with crypto assets.
• Global Regulatory Responses: A comprehensive and globally consistent regulatory approach is needed to effectively supervise the crypto industry. The cross-sector and cross-border nature of crypto assets limits the effectiveness of uncoordinated national efforts.

By following these recommendations and adapting to the evolving regulatory landscape, crypto funds can navigate the complex world of compliance and contribute to the sustainable growth of the cryptocurrency market.

Crypto funds and ETFs

Crypto ETFs

Crypto ETFs are investment funds that trade on stock exchanges and track the performance of cryptocurrencies or crypto-related assets. They offer investors a way to gain exposure to cryptocurrencies without directly purchasing and holding the digital assets. This provides the benefit of convenience and lower costs compared to direct ownership. Crypto ETFs can be based on a single cryptocurrency, such as Bitcoin or Ethereum, or they may provide exposure to a basket of cryptocurrencies.

The first crypto ETFs were approved by the Securities and Exchange Commission (SEC) in 2024, allowing investors to gain direct exposure to crypto prices without owning the underlying assets. Crypto ETFs have grown in popularity due to their accessibility and the growing interest in cryptocurrencies.

Some examples of crypto ETFs include:

• IShares Bitcoin Trust (IBIT)
• Bitwise Bitcoin ETF (BITB)
• Grayscale Bitcoin Trust ETF (GBTC)
• VanEck Ethereum Strategy ETF (EFUT)
• Global X Blockchain ETF (BKCH)
• Amplify Transformational Data Sharing ETF (BLOK)
• ProShares Ultra Bitcoin ETF (BITU)

Crypto Funds

Crypto funds, also known as crypto investment funds or crypto asset funds, are investment vehicles that pool money from multiple investors to purchase and manage a portfolio of cryptocurrencies and crypto-related assets. These funds are typically managed by professional investment firms or crypto asset managers.

Crypto funds can have different strategies, such as long-term holding, active trading, or a combination of both. They may also focus on specific sectors within the crypto market, such as decentralised finance (DeFi) or non-fungible tokens (NFTs).

Some examples of crypto funds include:

• CoinShares
• Grayscale
• Bitwise
• Valkyrie
• ProShares

Benefits and Risks

Investing in crypto funds and ETFs offers several benefits, including:

• Diversification: These investment vehicles provide exposure to a range of cryptocurrencies and crypto-related assets, reducing the risk associated with investing in a single asset.
• Accessibility: Crypto funds and ETFs offer an easier way to invest in cryptocurrencies, especially for those who are new to the space or prefer a more traditional investment approach.
• Lower Costs: They can help reduce the costs associated with purchasing, storing, and securing cryptocurrencies, such as transaction fees and wallet fees.
• Professional Management: Crypto funds are managed by professional investment firms, providing expertise and potentially reducing the time and effort required for individuals to research and manage their crypto investments.

However, there are also risks and considerations to keep in mind:

• Volatility: The crypto market is known for its high volatility, and the values of crypto funds and ETFs can fluctuate significantly.
• Regulatory Uncertainty: The regulatory environment for cryptocurrencies is still evolving, and changes in regulations can impact the availability and structure of crypto funds and ETFs.
• Lack of Direct Ownership: Investing in crypto funds and ETFs means you do not have direct ownership of the underlying cryptocurrencies, which may be important for those who value the decentralisation and anonymity of crypto.
• Tracking Error: Crypto ETFs may not always perfectly track the price movements of the underlying digital assets, especially for ETFs that use derivatives or futures contracts.

Crypto funds and their performance

Crypto funds, also known as blockchain funds or digital asset funds, have been available to investors since the launch of the first bitcoin fund in 2013. Since then, the crypto fund industry has grown rapidly, with over 800 funds currently in operation. The growth in crypto funds is driven by rising prices, increasing public awareness of cryptocurrencies, and the mainstream recognition and acceptance of cryptocurrencies as a legitimate investment asset class.

The performance of crypto funds has been mixed, with periods of high returns followed by significant downturns. Crypto funds experienced a boom in 2021, with total assets under management (AUM) peaking at $62.5 billion. However, in 2022, the crypto market entered a severe bear market, and the total AUM of crypto funds declined by 66% to $20 billion. Despite this volatility, crypto funds have slightly outperformed Bitcoin and most other cryptocurrencies since 2016, and they have offered superior returns compared to passive benchmarks or conventional risk factors.

Some of the top-performing crypto funds, based on various award categories, include:

• Eltican Asset Management's Eltican Positron SP
• Plutus21 Blockchain Capital's Plutus21 Blockchain Opportunities Fund I, L.P.
• Terafirma Capital's Terafirm Cryptocurrency Investments and Digital Assets Fund
• Plutus21 Blockchain Capital's Plutus21 Genesis Fund
• Amphibian Capital's Amphibian USD Alpha
• LibertyRoad Capital's BTC Volatility Trading Strategy
• Axon Enigma GP's Axon Global Fund LP

While the performance of crypto funds has been impressive, it is important to note that investing in cryptocurrencies carries a high level of risk due to the volatile nature of the market. The extreme outperformance of crypto funds compared to traditional asset classes may be partly due to the low competition in the crypto fund industry, with a small number of funds dominating the market in terms of AUM.

Overall, crypto funds offer investors an opportunity to gain exposure to the cryptocurrency market and benefit from the potential for significant returns. However, it is crucial for investors to carefully consider the risks and conduct thorough research before investing in this relatively new and still evolving asset class.

Crypto funds and their asset managers

Crypto funds have been available to investors since the launch of the first bitcoin fund in 2013. As of 2024, there are over 840 cryptocurrency funds, with the market growing exponentially. Crypto funds are a new type of investment vehicle, similar to mutual funds or ETFs, but with a portfolio of digital tokens and cryptocurrencies.

Crypto asset management is the practice of buying and selling crypto assets to maintain a portfolio and allocate assets according to an investment strategy. Crypto asset management companies help investors diversify, manage, and grow their blockchain-linked assets. These companies can help investors with portfolio management, risk management, tax planning, and compliance.

• Multicoin Capital: Multicoin Capital is a crypto fund manager with a presence in Austin, New York, and Beijing. It manages long-duration capital on behalf of family offices, institutions, and high-net-worth individuals. Its managed assets under management (AUM) have reached over $3 billion, and it has a diverse asset portfolio.
• Grayscale Investments: Grayscale is one of the world's largest digital currency asset managers, with net AUM of $45.1 billion as of April 2021. The company is SEC-registered and offers a range of products, including the Grayscale Bitcoin Cash Trust and the Grayscale Ethereum Trust.
• Pantera Capital Management: Pantera is a pioneer in digital asset management, having launched the first crypto fund and the first blockchain-only venture fund in the US in 2013. It offers several investment types, including venture equity, early-stage tokens, and liquid tokens. Its global portfolio includes over 90 blockchain companies and 100 early-stage tokens.
• Bitwise Asset Management: Bitwise is a San Francisco-based crypto asset manager that offers tailored products and solutions. It is one of the fastest-growing crypto asset managers, with over $1 billion in AUM, and provides professional crypto portfolio management services.
• BlockTower Capital: BlockTower is a crypto/blockchain investment firm leveraging trading, investing, and portfolio management expertise for various digital assets. The firm is comprised of venture investors, traders, data scientists, and risk managers.
• Systematic Alpha: Systematic Alpha is an award-winning crypto asset management company based in Miami. It specializes in systematic trading across various markets and offers two programs: the Systematic Alpha Cryptocurrency Arbitrage Master Fund and the Systematic Alpha Intraday Trading Program.
• Digital Currency Group: Digital Currency Group (DCG) has been investing in cryptocurrencies and blockchain companies since 2012. It provides a range of financial services, including incubating startups and supporting the growth of distributed ledger networks. DCG has a diverse portfolio spanning various industries and has a managed AUM of $50 billion.
• Wave Digital Assets: Wave is a leading digital asset investment firm and the first SEC-recognized investment advisor focusing exclusively on digital assets. It offers custom investment solutions, treasury management, and wealth management services. Wave has over $1 billion in AUM and provides multiple SEC-registered strategies to expose clients to diverse digital assets.

Frequently asked questions