Investing in crypto funds – the ins and outs
One of the reasons why many people are reluctant to invest in ICOs and cryptocurrencies is the fact that optimizing your crypto portfolio can take a lot of time and effort. And that is where institutional investors come into play. Crypto funds invest both in young blockchain start-ups and established cryptocurrencies. They perform professional market analysis and choose the most promising blockchain projects, thereby simplifying the investment process for non-professionals.
So, you’ve decided to invest in an ICO or buy cryptocurrencies through the fund. The main problem that you may face is that the vast majority of funds work only with accredited investors. The definition of an accredited investor varies between jurisdictions, but the point is that there exists a certain threshold of an individual’s income. For the US, where the overwhelming majority of crypto funds are registered, one must meet at least one of two conditions - earn at least $ 200,000 in each of the previous two years or have a net worth of at least $ 1 million. In addition, quite often the minimum investment sum for a crypto fund varies from $ 10,000 to $ 100,000.
If you cannot afford to play for high stakes, you can choose a hedge fund that is tokenized. Such funds generally issue tokens via ICO, and fund performance determines the amount of dividends that are distributed to tokenholders periodically (usually quarterly). You can invest in a tokenized fund by purchasing at least one token. During ICO, the value of the token normally does not exceed 1 bitcoin (most often it is equal to a few dollars).
Finally, there are crypto funds that are listed on traditional exchanges. In this case, anyone can make an investment by buying shares through a broker.
Moreover, keep in mind that due to SEC regulations there are only a few funds that deal with US citizens.
It is worth mentioning that most funds charge fees. The "2-20" scheme common for traditional investment funds is also widely applied in crypto industry. It means that funds charge 2% of total asset value as a management fee and additional 20% of any profits earned.
If you do the trading on crypto-exchanges independently, fees for purchasing a crypto currency are way lower. However, since crypto funds diversify risk by investing in different assets, returns can exceed the average market by 80-100%, and in the case of the most successful funds the profit may reach 1000% or more.
Thus, when all subtleties are taken into account, investment through a crypto fund can be an excellent option for beginners in blockchain industry.