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Everything You Need To Know About Cryptocurrency Mutual Funds


A Prelude to Cryptocurrency

Cryptocurrency is a digital currency which was thriving the markets lately. Although there was a drastic fall in this virtual currency, it doesn’t mean an end for the cryptocurrencies. The demand for cryptocurrency is gradually picking up again. Cryptocurrency is known for its implementation of the blockchain technology, and cryptography for processing transactions. There has always been a mixed view on investing in the cryptocurrencies. Investors can directly buy cryptocurrencies or invest in an investment fund. In the following sections, let us discuss what different types of investment funds have to offer.

What is a Cryptocurrency Mutual Fund?

Cryptocurrency mutual funds may seem a little unpopular and might not be a well-known traditional investment fund, but it doesn’t mean they can be neglected. They do hold a value in the mutual fund industry.

A mutual fund is an investment company managed by professionals that pools money from investors and invests that money in stocks and bonds. This is the traditional approach. Similar to it is the cryptocurrency mutual funds which do the exact same thing as the other mutual funds, the only difference it invests in cryptocurrency. Cryptocurrency mutual funds navigate a way for novice investors to invest in the cryptocurrencies.

Why Choose a Cryptocurrency Mutual Fund?

Always known for its investment in stocks, commodities and bonds, and providing good returns, the mutual funds have added cryptocurrency in their list as well. There are several reasons why an investor can consider investing in mutual funds:

  1. Money in the safe hands: One of the most significant advantages of mutual funds is that the capital is managed by experts. It is always better for an investor to hand over their investment to a professional.
  2. Reduced confusion: Investors who are new to cryptocurrency are often confused about the different cryptocurrencies; hence, investing in mutual funds can help solve the issue.

Risks Involved in Investing in Mutual Funds

Just like any other investment, investing in the cryptocurrency, mutual funds have risks involved with them.

  • Handing over your capital to someone else can be risky at times. Even though it is managed by a professional, if the market conditions are adverse, it becomes difficult to protect the capital.
  • Cryptocurrency being decentralized already carries risk with it. Also, the volatility in the cryptocurrency market is very high. Hence, this is not the mutual fund for the investors who are looking for stable returns with low risk.
  • Investors with some knowledge about cryptocurrency can consider investing individually than approaching mutual funds as mutual funds tend to levy high fees.

Cryptocurrency Hedge Funds

There exists a fine line difference between Mutual funds and hedge funds. Hedge funds operate just like the mutual funds, but they also short sell as well, unlike the mutual funds. Also, hedge funds usually take high leveraged positions, while, mutual funds play much safer by not taking high leveraged positions. Therefore, any investors who are willing to take higher risks for better returns can look forward to investing in this investment fund. Some of the cryptocurrency hedge funds are

Pantera Capital

Pantera Capital is considered one of the best hedge funds managing over $700 million. To be eligible to invest in this hedge fund, one must possess at least $100,000.

Coin Capital

This hedge fund is more preferred over Pantera Capital because it is very diverse when it comes to investment. This hedge fund invests in many cryptocurrencies, blockchain startups, and individual coin offerings.  As far as investment in cryptocurrency is concerned, they manage around 40 different cryptocurrencies.

Cryptocurrency and ETFs

Exchange traded funds (ETFs) is emerging to be one of the best forms of investment in the market. ETFs mainly focus on tracking the different sectors in the stock market. Similarly, cryptocurrency ETFs are the ones who keep a track on the happenings in the cryptocurrency market. In the recent trend, people prefer ETFs over hedge funds because hedge funds charge very high fees for investment, and the minimum amount required to invest is quite high.

The working of cryptocurrency ETFs is a little different from mutual funds and hedge funds. A cryptocurrency ETF tracks one or more digital tokens (cryptocurrency). And, like other ETFs, they are traded on the market where one can buy and sell the ETF. For the cryptocurrency ETFs to work like other ETFs, it has to own the assets of the stocks that it tracks. Therefore, the cryptocurrency ETFs would have to own an equivalent stake of the digital token. These token are then divided into shares. With this, the investors own the tokens indirectly. Also, ETF investors would then receive some percentage of profits generated by those assets as well.

Benefits of Investing in Cryptocurrency ETFs

  • Due to the existence of many digital wallets and exchanges, there is a high probability that they’re a scam. Therefore, an investor can choose to invest in the ETFs over investing individually into the digital currency.
  • Another advantage of investing in the ETFs is that they track many cryptocurrencies at once. Let’s say an investor is looking forward to investing in about ten different cryptocurrencies. For this, the investor has to open several accounts. Once invested, the investor would always have to keep an eye on all the invested cryptocurrencies. This would perhaps require a lot of time and effort. Rather, the investor can invest in just one ETF, which does all the necessary work of tracking the cryptocurrencies. Hence, the investor can buy shares of the ETF and get exposure to all those ten cryptocurrencies. This would indeed reduce a lot of time and efforts.

Drawbacks of Cryptocurrency ETFs

  • Limited choice: Comparatively, there are a very less number of cryptocurrency ETFs. The primary reason is due to the restrictions set by the SEC.
  • Volatility: As previously discussed as well, cryptocurrencies are known for their volatility in the market. Therefore, the cryptocurrency ETFs too are quite volatile.
  • Fees: As ETFs are traded in the market just like any other stocks, there are brokerage fees that apply when you buy and sell shares of the ETF.

Some of the Well-Recognized Cryptocurrency ETFs 

  1. Bitcoin Tracker One
  2. Bitcoin Tracker Euro
  3. Ether Tracker One
  4. Coinbase Index Fund
  5. Bitcoin Investment Trust

Therefore, anyone looking to invest in cryptocurrency ETFs can consider the above ETFs.


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