Digital currency investment fund (Crypto Fund) is one of the types of asset management methods that help people who have less knowledge about this market.
Basically, your assets in these funds are managed by market experts and get profit. Of course, you are required to pay the fees of these experts to use this service.
There are different types of cryptocurrency investment funds, each of which is used in a different way. In this article, we intend to give you a complete and comprehensive introduction to these digital currency investment funds and introduce you to them. let’s dive in and explore together:
- What is a digital currency investment fund?
- Different types of investment funds in digital currency
- Venture Capital Funds
- Hedge Funds
- Traditional Hedge Funds
- The difference between digital currency investment fund and ETF
- Advantages and disadvantages of digital currency investment fund
What is a digital currency investment fund?
A cryptocurrency investment fund is actually a collection of different crypto assets managed by one or more people. If you are interested in investing in this financial market, you should know that participating in it requires high experience, skill and knowledge.
If someone does not have the opportunity to acquire these skills, what is the way forward? In this situation, the digital currency investment fund helps those interested to participate in this market and earn money without having enough skills.
After buying digital currency, exactly when you add your assets to the fund, several traders and experts focus on them and design the best plan for asset profitability.
In fact, the higher the value of a fund, the more likely it is to receive a profit. According to the research, these investment services are mainly hedge funds, and almost only a few examples among them are venture funds.
Different types of investment funds in digital currency
In general, Crypto Fund is divided into several categories in terms of risk, and we will introduce each one and their features below.
Venture Capital Funds
Projects, altcoins and ICOs are used here. Because this type of assets is almost new and has a very high potential for profitability and growth.
So, investors who choose a venture capital fund should know that they may face very high profits or very high losses. Using this service has a very high risk and they are usually sold after making a profit.
Hedge Funds
Almost, it is considered a low risk fund. They act as a portfolio and are constantly being managed. This process helps to reduce investment risks in the market.
For this reason, it is also known as Hedge. Any asset can be placed in these funds, but usually, they are made up of different assets to be highly resistant to fluctuations.
This diversity in assets is used in short-term and long-term strategies and, in general, contributes to the sustainability of investors’ assets.
This investment service is available only to high-level investors.
Traditional Hedge Funds
These funds usually have a time limit for investment. For example, individuals commit to holding their property for at least one year or for a specified period of time.
Of course, using conventional hedge investment service has a slightly higher cost than other investment funds. Because the fee of these funds is almost 20%.
This amount of fee must be paid even if the investment has a sharp drop. For this reason, you should choose the best digital currency to invest in these funds.
The difference between digital currency investment fund and ETF
Before examining the differences, it is better to familiarize yourself with ETF, which is one of the digital currency projects. Exchange-Traded Fund is one of the investment methods or a financial instrument.
In them, the value of the asset depends on the underlying value of that asset. It is usually used in traditional stock markets and is less commonly used in the digital currency market.
In Crypto Fund, a person called an expert trades your assets to make a profit. But in ETFs, investors have to wait for an increase in the base price of that asset for their asset to make a profit. For example, in a Bitcoin ETF, whenever the price of BTC increases, your ETF will also gain a higher value.
Digital currency investment fund has the possibility of higher profitability than ETF. Because traders and experts trade on your asset and earn profit from it.
But in ETF, you have to wait for the asset price to rise in the market and if you don’t have good luck, you lose. Of course, if you know the market well, you can profit from this model at the right time with a little forecasting and analysis.
Advantages and disadvantages of digital currency investment fund
In the following, we will examine the strengths and weaknesses of this investment model.
Advantages
- Quick and easy investing: You don’t need to have a complete knowledge of the market to get started. Professional experts and traders manage this service for you.
- Saving time: in this way, people don’t have to manage their assets themselves and there is no need to follow them. As a result, your time cost is low.
- High liquidity: You can convert and spend your assets whenever you want. This issue is not so simple in the stock market and its liquidity is much less.
- Diversification of assets in a fund: You can use several assets. Diversification in a fund helps to reduce its risks. In this case, your capital will have very high profitability conditions.
Disadvantages
- Lack of awareness: There is a low level of awareness about this financial service. Many investors do not know these funds or do not trust them enough.
- Reduction of investors’ power of discretion: After the asset enters these funds, the investor has no discretion over his capital.
- High fee: The important thing is that this amount of fee is charged to investors regardless of profit or loss. With these interpretations, it can be a negative point at the time of property loss.