The Rise of Crypto-Funds
While the crypto industry as a whole has seen leaps and bounds in prices and technological developments that have improved overall exposure and expanded the user base of various cryptocurrencies, this wasn’t always the case in the past. Once upon a time, not too long ago, in fact, cryptocurrency wasn’t as wildly popular or understood as it is now. With the massive price change and a growing understanding of blockchain technology, a variety of different financial investment offers involving cryptocurrencies have emerged, with one of the most popular being crypto-funds. But what are these offers and why have we seen such a massive increase in these offers? Let’s take a look…
Firstly, What Are Crypto-Funds?
Crypto-funds are various and can either be categorized as:
- Crypto venture funds: Give investors the opportunity to fund major early crypto projects and liquid ICO/STO ventures, and to benefit from large pre-sale discounts;
- Crypto hedge funds: These invests in both early ventures and more established leading cryptocurrencies;
- Funds of funds: Invest in some selected crypto funds;
- Token baskets: Passively track the performance of indexes, e.g. the top 20 largest cryptocurrencies by market capitalization;
- Credit funds: Provide loans in cryptocurrencies and/or originate loans secured by cryptocurrencies.
There has been an increasing differentiation between crypto funds, which shows the emerging maturity of investor’ strategies. According to Autonomous Next, venture funds seem to be the most popular ones at the moment, followed by capital markets trading activities and various hybrid strategies.
Why Have Crypto-Funds Grown in Popularity?
As we stated in the introduction, there has been a spike in prices and interest in the crypto world in recent years. As a result of this, cryptocurrencies have become more legitimate to both investors and normal people who are interested in taking part in this financial revolution. (You can read our article about the Advantage of Diversification and What can crypto add to a portfolio). However, investing money into cryptocurrencies individually and having to keep track of all of them at the same time can prove to be quite difficult. The reason why crypto-funds have become so popular is due to the fact that some investors prefer to put their money into the crypto market through professional investors handling their portfolio. In addition, crypto-funds are among one of the first financial investment tools in the industry and their novelty is helping to grow their popularity and encourage investors to try them out.
Just How Popular Are They?
At the time of writing, there are c.300 known crypto-funds out there and that number is only estimated to grow with time, with over 250 started in 2017 and 2018. (Keep in mind that that number does not include the crypto-funds that are not publicly known.) Collectively, these funds manage approximately $7 billion dollars in assets.
The biggest question that potential investors have is, are crypto-funds are here to stay? While there is no certainty in the cryptocurrency industry, crypto-funds provide some expertise to a young and slowly maturing market. As long as people continue to put their faith in crypto and the industry continues to seek advancement, crypto-funds should be here to stay.
Disclaimer: While many new funds have launched in the past years, it is important to note that not all of these entities will be viable in the long-term. The number of funds is highly correlated to ICO fundraising and to the performance of cryptocurrencies. Cryptocurrencies are extremely volatile, and one should conduct its own due diligence before taking any investment decision.