Popular Cryptocurrency Hedge Funds
Cryptocurrencies like Bitcoin, Litecoin, and Ethereum (and other altcoins) continue to make headlines and attract new investments, but they are still considered high risk and are speculative at best. That’s because cryptocurrency is only a decade old at this point, and is not (by its nature) backed by any government like fiat currency is. This makes it a new industry in a highly unregulated space, and that creates risk.
But that doesn’t mean you can’t make a lot of money with cryptocurrency. Many people do and it’s is the potential to make a lot of money quickly that is attracting hedge fund investors.
According to dictionary.com hedge funds are “a mutual fund organized in a limited partnership using high risk, speculative methods to obtain large profits.”
All investments carry risk, but both hedge funds and cryptocurrency carry more than average risk. Before you invest in a cryptocurrency hedge fund there are some things that you should know.
What to Know Before You Invest in a Cryptocurrency Hedge Fund
While it is possible to earn a lot of money very quickly in cryptocurrency hedge funds, it’s also possible that you can lose every bit of capital that you invest, as again, these are very volatile, risky, and speculative investments.
Cryptocurrencies are currently more like gambling than a traditional investment strategy of putting money into the broader stock market. This doesn’t mean you shouldn’t investigate them, just that you need to be aware of the risks that you are taking.
The value of cryptocurrency can go up as fast as it can go down. There is a lot of hype around cryptocurrency now, and that hype can lead to bubbles and crashes.
Now that I’ve gone over the risk potential, let’s look at three of the cryptocurrency hedge funds are out there and what makes them unique.
Cryptocurrency Hedge Funds
Currently Pantera Capital is managing over $700 million across five cryptocurrency funds in two different venture funds. You must have over $100,000 to invest in order to be eligible to invest in this fund. That makes this fund best for institutional investors or investors with very high net worth. This firm has been around since 2013, so it's relatively old for a cryptocurrency hedge fund.
You’ll find that returns in this fund are all over the place, with the fund taking major drops this year. But if you have the money to invest (and potentially lose), it may be worth your time checking out.
CoinCapital is more suited to individual investors than Pantera Capital, although they are still looking for people with a net worth of over $2.1 million. This hedge fund invests in a variety of cryptocurrencies, blockchain startups, and individual coin offerings. They manage over 40 different cryptocurrencies including many popular ones like Ethereum, Litecoin, Bitcoin, Ripple, and Dash.
One of the things that make CoinCapital stand out is that it’s managed by a team that has marketing, sales, and finance backgrounds.
BitcoinsReserve runs a unique cryptocurrency hedge fund called the Arbitrage fund. This fund automatically trades across different cryptocurrency exchanges in order to “correct market inefficiencies”.
This is an interesting strategy because many cryptocurrencies will follow different prices across different cryptocurrency exchanges. By taking advantage of these price differentials, the arbitrage fund seeks to gain profits. BitcoinsReserve is the most accessible fund of this bunch for average people. One of the other things that are unique about this fund is that their website is much less gated. You can find out exactly what they do and who they are without having to fill out long forms.
There are also many other crypto hedge funds available to invest in, but it pays to keep in mind that hedge funds are high risk by nature because they are looking for significant, short-term gains instead of long-term, slower growth. When you combine that risk profile with the inherent riskiness of the cryptocurrency market you can get a lot of volatility and lose a lot of money very quickly.
If you decide to invest in cryptocurrency hedge funds, then make sure you are investing money that you have to lose and understand the risks you are taking. Cryptocurrency is an exciting development, but it’s too early to tell if it will have staying power or collapse after a bunch of hype.