Hedge funds have long been a popular choice for risk-averse investors who rely on the fund’s visionary founder and teams of analysts to direct their money. But exactly what is a crypto hedge fund? Continue reading to learn more about it.
What Is Hedge Fund?
Hedge funds, according to the US Securities and Exchange Commission (SEC), are investment vehicles that pool money from various investors in order to generate positive returns.
Hedge funds are typically restricted to wealthy investors who can afford higher management fees and the risk associated with hedge fund investing. Furthermore, participation in hedge fund investing necessitates a large minimum deposit.
The SEC also stated that hedge funds are not as heavily regulated as mutual funds. They have greater freedom to pursue high-risk investments and strategies through the use of leverage, short-selling, and other speculative financial instruments.
Many crypto hedge fund firms are solely concerned with investing in digital assets. Other cryptocurrency hedge funds have invested in stocks, bonds, foreign currencies, and commodities.
How Crypto Hedge Funds Work
When it comes to discretionary and systematic investment strategies, we know how a hedge fund manager can employ either of these approaches.
With this methodology, the fund manager has complete control over the allocation of investment decisions. Even though the systemic approach makes use of computer models to handle trades, the method itself is based on complex mathematical models.
Even though the discretionary method supports the vast majority of these funds statistically speaking, it is statistically understood to be less risky because the entire process is automated.
Types Of Cryptocurrency Hedge Funds
Pantera Capital
Pantera Capital is a crypto investment fund that provides investors with a wide variety of capital allocation options, ranging from blockchain sector venture equity, early-stage tokens, and liquid cryptocurrencies.
According to the company’s website, Pantera’s Liquid Token Fund is “predominantly driven by a discretionary strategy focused on decentralized finance(DeFi) and adjacent assets”, with investments in 15 to 25 liquid tokens at any point in time.
Pantera’s Liquid Token Fund was launched in November 2017. It has a minimum investment of $100,000, a 2% management fee, and a 20% performance fee.
Pantera’s Blockchain Fund invests in venture equity, early-stage tokens, and liquid tokens. It has a minimum investment of $1m. The company’s other funds include the Select Fund, Early-stage Fund, Bitcoin Fund, and Venture Fund
According to the company’s website, in 2013, Pantera became the first cryptocurrency hedge fund to launch in the US. As of 29 June 2022, Pantera’s assets under management (AUM) stood at $5.1bn.
Coin Capital
Coin Capital is more suited to people with smaller wallets than Pantera Capital. This hedge fund invests in a variety of crypto, blockchain startups, and single coin offerings. It manages over 40 different cryptocurrencies, including Ethereum, Litecoin, Bitcoin, Ripple, and Dash.3
Bitcoin Reserve
Bitcoin Reserve runs a crypto hedge fund called an arbitrage fund. This fund trades across different crypto exchanges at the same time to try and correct market inefficiencies.
This is an interesting strategy because many cryptocurrencies follow different prices across different crypto exchanges. An arbitrage fund seeks to gain profits and reduce risk by expanding on these price differentials.
The median cryptocurrency hedge fund had $15 million of assets under management (AuM), six payrolled employees, and about $300,000 in revenues.1 At this rate, the average fund will not be able to fund operations for very long unless they charge very high management fees or find other funding—that means funds with lower AuM will have additional risk and costs over larger funds.
Bitcoin Reserve is not the easiest fund for average investors to access unless you have a lot of spare capital. You’ll still need to have more than $59,000 available to gain entry to the fund.
Conclusion
A hedge fund is a different way for a person to invest in a large group of underlying securities than a cryptocurrency index fund, an ETF, or an exchange. These are managed by expert investor teams, rebalanced on a regular basis, and endlessly analyzed.
The market maneuverings of these experts profit investors. There are two types of cryptocurrency hedge funds at the moment. Those who manage cryptocurrency-only portfolios and those who have incorporated some cryptocurrency into a mix of other asset types.
