Main Reasons for the Crypto Hedge Funds Increase
In the past two decades, cryptocurrencies such as Bitcoin and other crypto-based products have been making headlines globally. As the masses continue to understand cryptos, different industries across the globe are starting to see the potential of decentralized currencies, and they aren’t sitting back.
The online gaming industry, for instance, is now packed with crypto-based solutions, whether in the form of payment options or decentralized games. So, players who relish casino gaming on leading sites like Vulkan Vegas casino can gamble and collect cryptocurrency payouts elsewhere if they wish. Speaking of getting paid, the financial services industry is also going big on the adoption of cryptocurrencies. So, while there are players in the financial world that are slow to recognize crypto as a viable investment, there are those who view it as a promising venture.
Look around the finance scene, and you’ll notice that there’s been a rise in the number of crypto hedge funds. As in the case of traditional hedge funds, crypto hedge funds are popular with risk-averse investors since they rely on the fund’s managers to invest their money. If you’ve ever had questions about why cryptocurrency hedge funds are on the rise despite the volatile nature of the market, then here’s a chance to get all answers you need.
Crypto Hedge Funds Advantages
Based on past experiences, no one can predict the future value of a digital asset. However, since the crypto market is still young and volatile, finding a good crypto hedge fund is the way to go. Here’re five reasons you should invest through a crypto hedge fund if you are looking into buying crypto and crypto-based products.
High Returns Potential
Due to the high-risk, high-return strategies employed by crypto hedge funds, the potential for making a killing is high.
Investing Through Highly Skilled Crypto Analyst
In the crypto world, if you’re an inexperienced investor, you may lose your hard-earned money through scams. Therefore, investing in digital assets through a crypto hedge fund is vital as highly skilled fund managers manage it.
Use of the Venture Capital Approach
Since the crypto hedge funds have a pool of money at their disposal, they’ve adopted the venture capital approach. Crypto hedge funds look for new digital asset entries into the crypto space by providing new coin financial support. In addition, the fund can also provide support and financial backing to startups which helps boost the crypto industry.
Crypto Hedge Funds Take Advantage of the Market
The crypto market is evolving before our eyes, and even when there is a downturn, crypto hedge funds can still make money.
Diversification
Crypto hedge fund platforms provide investors with a more diverse portfolio. In addition, the fund offers investors a wide range of carefully selected digital assets, for example, eToro’s Crypto CopyFund.
Fundamentally, many investors are willing to dip their toes in the crypto waters, provided their money is invested by skilled parties. As such, the number of crypto hedge funds is increasing due to the demand from industrious but cautious consumers.
Crypto Hedge Fund Regulations
A crypto hedge fund doesn’t have to register with the Commodities Futures Trading Commission (CFTC) if they purchase digital assets outright. However, the fund must register with CFTC if they buy crypto with leverage, futures contract, or margin. CFTC has indicated that cryptocurrencies will be treated differently from the other currencies under the Commodities Exchange Act of 1934 because digital assets don’t have legal status in the US. However, under Section 1a (9) of the Commodities Act, digital assets are commodities.
Crypto hedge funds that trade crypto futures contracts instead of straight cryptos are supposed to register as a commodity pool operator (CPO) and commodity trading advisor (CTA) with the National Futures Association (NFA) and CFTC.
Traditional and Crypto Hedge Funds Also Adopt Crypto Assets
According to a PwC survey, traditional hedge funds have warmed up to cryptocurrencies. However, most of them have only taken smaller positions compared to crypto hedge funds. In 2022 alone, around 38% of traditional hedge funds surveyed had invested in cryptocurrencies and crypto-based products, increasing from 21% in 2021.
Meanwhile, over half of the traditional hedge funds indicated that they had less than 1% of their total AuM in cryptocurrency. However, 20% of the traditional hedge fund surveyed revealed they have between 5% to 50% of their AuM (asset under management) in digital assets.
On the other hand, based on the PwC crypto hedge fund 2022 report, the number of crypto hedge funds stood at over 300. Further, the total AuM stood at $4.1 billion, an 8% increase from the previous year.