Hedge funds and venture funds are two of the most popular investment methods that use high-risk methods and borrowed money to maximize returns. They have been longtime players in the financial investment scene, and these methods are also being adopted in the emergence of cryptocurrency funds in the market.
Technology has been dominating and evolving people’s daily tasks over the years, so it should not be much of a surprise that cryptocurrency funds are now a thing. After all, the growth of the crypto industry, as well as the rising value of Bitcoin are both desirable to any investor.
Primarily, much like traditional investment funds, a crypto fund seeks to amplify returns through cryptocurrencies or adding new initial coin offerings (ICOs) to the mix. This investment will buy and trade virtual tokens instead of fiat currency; however, the fiat value of the coins dictate the direction of the investment.
The Crypto Investment Fund Landscape
According to Crypto Fund Research, there are 769 crypto investment funds in the global market. More than 50% of these funds are set up as hedge venture capital funds, closely followed by hedge funds, and lastly, private equity or hybrid funds.
Venture funds are now the most common type of crypto investment fund. Tech and crypto companies are beginning to blueprint and start their blockchain funds as well. Blockchain companies who have been in the game for quite some time are beginning to experiment with private equity funds. Hybrid funds were also introduced, which are a combination of investing in cryptocurrencies and ICOs. In terms of behavior, hybrid funds act like venture funds.
How many crypto funds are there?
In terms of crypto fund launches, the industry saw a spike in new funds in 2017, with around 224 openings. It was a big deal for the investment landscape as this figure tripled that of the funds open in 2016, which was just at 53. In 2018, a new record was set of 239 new funds opened. This means that more than half of today’s current crypto funds were opened within the last two years.
This 2019, the projected number of new funds to open is 145. This number could grow to become more significant, depending on the investment trends happening within the year.
Since a lot of these funds opened up fairly recently, it’s not much of a shock to learn that most of them are still relatively small. Around half have less than $10 million in assets under management (AUM). However, there are still several funds that amount to $100 million in assets. Some of the most prominent players in this category are:
1. Pantera Capital
2. Galaxy Digital Assets
3. Alphabit Fund
It’s worthy to note that while crypto funds are slowly increasing in popularity, it’s a long way to go before this dominates the investment scene. All crypto funds combined make up less than 1% of total hedge fund assets.
Where are crypto funds coming from?
The U.S. takes the lead as the country with the most number of crypto funds opened at 372. This is around half of the current total in the market. The top cities are San Francisco and New York. They are closely followed by the countries below, including the number of funds opened:
1. China/Hong Kong: 72
2. United Kingdom: 48
3. Singapore: 45
4. Switzerland: 28
5. Canada: 23
6. Australia: 22
7. Germany: 14
There are 141 funds spread around various countries across the globe, most prominently in Eastern Europe and Russia. It’s worthy to note that the top places where crypto funds exist are cities where hedge fund and venture capital investments are prominent.
What Crypto Funds Mean for Digital Currencies
According to Josh Gnaizda, founder and CEO of CryptoFundResearch, crypto funds peaked in popularity when Bitcoin broke through $5,000. This gave investors confidence to open their funds, inspiring even those who are operating small-scale and with no prior investment management experience. The growth of funds is looking to be optimistic for 2019 and beyond, as the market is new and racking up interest. Surprisingly, lower cryptocurrency prices in 2018 did not affect the performance of crypto funds, as their AUM increased. Many crypto funds are still expected to launch with $100 million assets in tow.
However, volatility is just something you can’t erase from the cryptocurrency industry. Even top-performing coins such as Bitcoin, Ethereum, and Ripple can’t escape the bearish trends that inevitably hit them. This means that, much like any other crypto product, altcoins should remain as a risky but viable investment for traders and companies so they can incorporate more of the blockchain tech in their processes and eventually consumer activities.
Investment schemes will continue to get creative and adopt new methods to earn money. Crypto funds are looking to have a bright future amidst the uncertainty and skepticism that its industry usually deals with frequently. Expect more fintech companies and new players to start investing in crypto funds and the future of cryptocurrencies to remain bright as more people start believing in the applications and use of blockchain technology.
The consistent technological advancements in the past decade have effectively transformed the way younger generations perform tasks ranging from the mundane to the complex. It has also widened their tolerance and acceptance of trying out “risky” or new things, such as investing in digital currencies.
When blockchain erupted a decade ago and the first cryptocurrency was born, it was met with a lot of skepticism. New currencies emerged, and some even crashed (and resurrected), but these altcoins seem like they’re here to stay. People became curious and more open to studying the world of virtual currencies, and eventually began utilizing them for trading and acquiring goods. In a survey of 1,000 online cryptocurrency investors, it was revealed that 43% of millennials have more faith in the crypto market than traditional stocks.
Now, traders are becoming more and more interested in the world of cryptocurrency investment rather than the traditional stock market, because of the higher potential returns. But how accurate are these claims? It’s time to dive in and discover the similarities and differences between the two.
Crypto vs. Traditional: Which Market is Better?
Most people immediately assume that digital and traditional markets have a lot of differences. While they’re not wrong, they’re not entirely correct either. The two have a lot more in common than you think, and it all boils down to the basics.
1. Baseline function – Both markets operate under the same principle. The demand dictates the prices in the cryptocurrency market and traditional stocks, or how much people are willing to pay to own cryptocurrency or a stock market share. In effect, when people are willing to pay more for a specific product, prices hike up; while prices deflate when no one pays attention to it or more people sell their ownership of the said product.
2. Fiat currency value – The market caps and value of each cryptocurrency is often reported in U.S. dollars, similar to the traditional stock market whose value is still defined by government-issued currencies. There’s a possibility for this to change depending on the success of the cryptocurrency market in overtaking or co-existing alongside fiat currency, but for now, this is its reality.
3. Investment based on value – In either market, investors look at the feasibility and potential of each product. If they find that a particular currency is performing well than others, they could put more money behind that. This is similar to traditional stock market moves where they base the purchase of their shares on trends and behind the growth potential of the company.
Market crashes – Both markets have experienced crashes due to many economic factors, such as the 2018 Bitcoin crash and the 2008 stock market crash. This indicates that both have inherent risks, which are expected in the practice of investment anyway.
Of course, there are stark differences, and this is where the debates come in. The following could either interest or deter you from making your investment decisions in each market.
1. Ownership – In the stock market, purchasing a share means you get to own part of the company. This is unlike the crypto trading industry where you mostly invest on the currency and its value, not the company behind the creation of the virtual tokens—even if the business of the company could affect the performance and price of the coin. However, cryptocurrencies are made to stand alone without third-party factors, something that adds to their unique selling point.
2. Profit – If you invest to earn, then you’ll know why many people are more excited about the cryptocurrency market than traditional stocks—it’s easier to get returns on the former and much slower on the latter. The presents a lot of opportunities for traders, which translates to high earnings in a short time. While this introduces risk, as any investment would, some tools can help you avoid it and achieve your financial goals.
3. Global reach – Bitcoin, the most valued cryptocurrency to date, is globally accepted by up to 180 countries. This makes ownership and investment actions fluid and accessible no matter where you are in the world. The stock market is so heavily regulated that there are a lot of processes and formal accreditations one must file before continuing investments from another place. One way to achieve global reach in the stock market is through a broker, but it’s time-consuming and more expensive than doing it yourself.
4. Trading operations – Trading with cryptocurrency can be done 24 hours a day, seven days a week. The events have a quick impact on the market, which also spells instant earnings if you happen to be trading at the right time. This is not the case with the stock market. Trading sessions are present, which means trading only occurs during certain times of the day and ceases operations during weekends and holidays. This makes crypto trading and investments more updated or real-time than the stock market—useful for studying data or watching trends for the products you’re eyeing.
5. Ease of investment – Starting your journey as an investor in the cryptocurrency market is no doubt faster than the stock market. The crypto market isn’t regulated, which means there are different requirements per country, but they are often basic. There’s also less capital required, and the paperwork is more straightforward and less time-consuming. This could change in the future as more government initiatives are beginning to regulate cryptocurrency activity. This differs from the stock market, which has always involved a lot of paperwork, brokerage, taxes, fees, certifications, and more.
6. Amount of supply – Stocks don’t have a cap imposed on them, but some cryptocurrencies do. Such as the case in Bitcoin, where only 21 million altcoins are ever to be mined. As soon as all of that is circulating, the production of Bitcoin will stop, and it’s predicted that demand will only grow larger and larger. Companies can always add stocks for people to buy, which also means more controlled price hikes or drops in the future.
The Bitcoin Price Crash and Stock Market Crash: Are They The Same?
To better explain the answer to this question, one must know why the stock market and cryptocurrencies crash individually.
Stock market crashes usually point to fear-based actions by the traders and market predictors. The panic of profit loss typically drives this phenomenon, which can result in economic recessions. When stock markets crash, they also slow down the growth of the companies involved as investors would be wary of putting up their money. This triggers a chain reaction of company size-downs, lay-offs, and the like.
On the other hand, the cause of Bitcoin’s price crash is a little bit more unclear. Reports merely say that it could have been other emerging coins presenting more value to crypto traders, which meant a shift in where people would want to make their crypto-related investments.
So, are they the same? Well, yes and no.
The similarity lies in the fact that people will generally invest in something they see more value in, based on reports and trends of past tradings. However, the effects of each market’s crashes are drastically different. Cryptocurrencies and stock markets also work independently from each other, meaning they are not correlated. This means the Bitcoin price could crash and stock markets would be unaffected, and vice versa. Essentially, cryptocurrencies present more choices in investment opportunities for traders.
The Dot-Com Bubble and the Bitcoin Bubble: What’s the Difference?
When the internet was first introduced to the masses, it presented exciting times for people globally. Suddenly, the world seemed smaller, and tons of information was available right at a user’s fingertips. Fast forward to today, and the internet is still playing a massive role in tech businesses, the media, and more.
When blockchain technology gave birth to Bitcoin, it gained a lot of attention, but a little less excitement and more confusion. People couldn’t wrap their heads around a digital currency that didn’t need the backing of banks or third-party mediators for transactions to happen. They thought it wasn’t secure and the fact that Bitcoin isn’t tangible made things all the more difficult for an everyday user to grasp.
Even though there are plenty of companies riding the cryptocurrency wave and also developing altcoins of their own, the truth is, ten years later, the impact of Bitcoin is too small to influence or command change at a global scale drastically. This is what investors and crypto companies are waiting for—and slowly but surely, they are getting there.
High Risk, High Reward
In the industry of trading, you won’t be able to see returns on your investments if you’re not willing to experiment with new vehicles. That’s probably what makes the crypto world so exciting. The age of tech will only grow stronger and potentially dominate many other sectors over the years, and the investment in one of its earliest projects, virtual currencies, show a potential that many millennial traders are noticing.
As different companies and governments launch their digital currencies and explore blockchain technology; it’s soon becoming less farfetched to imagine a world dominated by digital currencies. The industry is beginning to mature, and its flexibility presents exciting times ahead for traders.
The facts above surely gave you a lot of room to consider which investment vehicle you want to put your money in. Just like any venture, it will be your responsibility to study the pros and cons of your financial actions—high risk, high reward.
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The rise of cryptocurrency has had its fair share of controversy. It’s rarely met with high regards, especially with news like hacking, ransomware attacks, and investment frauds making rounds now and then. However, this isn’t to say that its investors aren’t making bad decisions themselves.
Admittedly, hooks like high returns in a matter of days can mislead people into thinking that they can be overnight millionaires through crypto. However, simple research will tell you that much like any other investment, cryptocurrencies should be tread on cautiously.
For instance, a crypto user deposited his Bitcoin into QuadrigaCX, a Canadian crypto exchange platform, and liquidated the coins for $560,000. Unfortunately, when it came time for him to withdraw the money from QuadrigaCX, the company failed to pay its dues, with Ethereum and Bitcoin both speculating that the company never held coins in their cold storage wallets.
In another story, a Japanese employee living in Tokyo who initially invested only ¥100,000 got excited when his funds grew by 150% in a month—which made him shell out an additional ¥1 million. Sadly, the second investment failed due to a crash, and he ended up losing half of his life savings.
Conversely, there were also success stories from those who put their life savings on the line and saw it grew thanks to crypto. But what could be the differentiators that made other investors successful from those who regretted it?
Here‘s how you can invest in crypto in the smartest ways possible:
1. Do your homework
It’s not that hard to find resources about crypto—in fact, if you have a stable internet connection and a desktop/laptop/mobile device, not only can you read and learn more about altcoins but also transact with or exchange it. There is no excuse for not being enlightened about its underlying asset.
Before putting your money down, make sure to understand enough about a cryptocurrency. Look at not only its market cap, but also other aspects like types, plans, and management. Almost every single kind of coin has available whitepapers online—check out sites like All Crypto Whitepapers and brush up on knowledge about potential investments.
In addition, blogs like Cointelegraph, CoinDesk, CCN, The Coinbase Blog, and many others can serve not just as supplemental learning sites but also as sources for the latest crypto news, recommendations, and stories that may affect your decision to invest.
A good rule of thumb is to invest only in what you understand. If you feel like you’re having a hard time grasping how crypto operates and make money, it may be wise for you to seek other investment opportunities.
2. Learn with practice
Reading is good, but to apply this knowledge means you actually have to invest in something. You don’t have to go all out at the onset—start small and study the environment first. Whether you earn or lose, at least you have learned some more from experience.
Repeat the elements that made it happen and apply the lessons you learned from any of the mistakes you did. Over time, you’ll build up enough knowledge and confidence to make a considerable investment in your cryptocurrency of choice.
One of the lessons that you can apply right away is that like other investments, diversification is key. A healthy cryptocurrency portfolio means investing in different coins, which may serve different use cases. It can help you realize potential future cryptocurrency gains.
3. Be wary of scams and gurus
If you’re not adequately educated about crypto before getting into it, you’re likely to fall for scams perpetrated by those who want to take advantage of the newbies in the game.
Pump and dump groups, which work like a pyramid scheme, are among the most common forms of fraud in crypto. It starts with a person who wants to move up the ranks and get trade signals ahead of other people inviting you to a group. If you’re going to achieve the same goal, you’d have to attract people, too, but soon it will be difficult to increase your rank because there are not enough people that you can invite.
There are also so-called gurus who give investment tips regarding a particular coin. Unless you have done due diligence yourself, don’t heedlessly follow their suggestions. In addition, try to find out more about the gurus you choose to follow—more often than not, most of them are in it just to fool people into handing over their life savings.
4. Never invest more than you can afford to lose
There are many reasons why you shouldn’t invest too much on crypto. First and foremost is the volatility of the market—it’s very vulnerable to huge price swings that don’t often happen in traditional finance. Investing just the right amount is a security blanket against an unexpected crash.
Of course, if you like living dangerously, you can turn crypto’s high volatility to your advantage through crypto trading. But you can only find success in this strategy if you do your due diligence and consistently educate yourself on the ins and outs of each cryptocurrency.
The second read why you should avoid investing too much on crypto is similar to why you shouldn’t put all of your eggs in one basket. You can spend on other altcoins, and should one experience a crash, you have at least an assurance that you didn’t put everything you have on it.
5. Find Success in Crypto
Investing in altcoins entails being aware of the risk. Anything is possible: it may be successful today, but it can all come crashing down tomorrow. Buy responsibly and be mindful of volatility. Invest your life savings only in cryptocurrencies you understand fully.
Keeping yourself educated is essential to achieving success in crypto investing. Check out our blog to learn and better understand cryptocurrencies before you start spending your hard-earned money on it.