The cryptocurrency market has grown significantly in the past few years. According to reports, approximately 20% of Brits have invested in cryptocurrency. Although many of these investors directly own cryptocurrency, others use cryptocurrency funds in the UK.
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Cryptocurrency funds mainly exist because not everybody can spare time and effort to study the new market thoroughly. Also, accredited investors (usually those with significant capital) may lack the expertise to manage it to generate the desired returns efficiently.
Those who invest in cryptocurrency funds typically transfer cryptocurrencies or fiat into trust management by professionals. These funds use various strategies, and their operating styles are different. This article takes a deep dive into the role of cryptocurrency funds and lists the top cryptocurrency funds in the UK for investors.
What is a Crypto Fund?
A crypto investment fund is a company that offers digital currency trading and investment services to private investors. Crypto funds are just like regular investment funds but their activities are limited to the cryptocurrency market.
These companies offer potential investors cooperation that implies that professionals will take care of their investment funds. In other words, cryptocurrency market experts will buy and sell on behalf of clients that contributed to the fund. In their expert opinion and based on thorough analysis, these transactions can generate profits that will go to the investors’ wallets. This certainly comes at a price; all crypto funds charge a commission fee. Some firms take a percentage of the profits, and some take the commission off the investment capital.
When someone decides to invest in a crypto fund, they transfer their funds for trust, and the company undertakes to manage these funds to multiply them and to pay all profits promptly. The responsibilities of these companies include:
- building up a client’s investment portfolio competently;
- searching for potential income-earning opportunities;
- defining management strategies;
- investment analysis;
- risk assessment.
All existing cryptocurrency funds fall into two categories. Some invest solely in and hold tokens for cryptocurrency projects. The company’s product popularity growth broadly defines the fund's profitability. There are also crypto hedge funds that only engage in cryptocurrency trading, which determines their profitability.
How Cryptocurrency Funds Work
The Crypto fund’s primary activity is the sale of crypto tokens. If an investor buys a share of tokens from it and their price goes up after this, the investor gains actual profit. After this, they can either trade the more expensive tokens for cash or leave them in the fund, hoping their price will increase. The rise in a token’s price depends on the fund’s capitalization: when it increases, so does the price of tokens.
To make the relationship between the fund and an investor legal, the two parties sign an agreement, in which they specify the percentage of their profits and all issues regarding the risk of capital loss.
Each crypto fund has its own strategy for cooperation with investors but normally they distribute investors’ funds in three main categories:
- Buy proven cryptocurrencies such as Bitcoin and Ethereum.
- Buy viable altcoins with top-market capitalization
- Buying into new and upcoming projects that funds find are undervalued.
As you probably understand, the level of competency of fund experts plays a significant role in all three cases. Considering the high volatility of the cryptocurrency markets, these experts spend a significant part of their working time monitoring the dynamics of the current rates. Access to insider information from cryptocurrency developers and stock market professionals also provides a great advantage.
In effect, the funds usually determine one or two promising projects and invest the majority of funds in them. On top of that, they also find newly viable (and old undervalued) crypto projects, in which they invest the remaining funds. The tokens of crypto projects that, in the fund expert’s opinion, have reached their maximum rates, get re-sold.
Types of Crypto Hedge Funds
Cryptocurrency investment funds usually fall into two categories: hedge funds, and unit investment funds. Crypto hedge funds manage investors’ assets and receive a certain commission percentage for this. The majority of these companies do not provide the option of withdrawing funds before the dates specified in the agreement.
The classification of cryptocurrency hedge funds relies on investment strategies. These strategies can be roughly divided into two categories:
- Ones chosen by Managers (discretionary/qualitative).
- Ones chosen by Computer Algorithms (systematic/quantitative).
Based on the commonly adopted categorization and based on the said categories, experts outline the following types of hedge fund strategies:
- Global macro strategy. Global macro strategies analyze macroeconomic events that can affect a current trend: make it keep its direction and dynamics or define a turning point. Economic trends emerging both on global and local markets, political aspects, climatic factors are some of such trends.
- Directional strategy. The directional strategy’s main goal is to predict key events in the market and make a maximum profit from it. It sometimes intersects with the global macro strategy.
- Relative value strategy (arbitrage). The relative value strategy is about cashing in on differences in value for the same offers in different markets. In short, in a situation when the prices for the same asset differ significantly, traders take advantage of it to gain profit.
- Multi-manager strategy. This is a complex construct where the crypto hedge funds themselves are presented as assets. This strategy involves multiple funds under single management.
Best Cryptocurrency Funds in the UK
CoinShares
CoinShares is a London-based crypto hedge fund that emerged in 2017 after the Global Advisors Bitcoin Investment Fund was rebranded. The company provides access to a number of products that enable access to most of the top cryptocurrencies by market cap. The most popular ETPs on CoinShares include COINXBT, COINXBE, and COINETHE.
CoinShares notes that its main goal is to monitor digital market trends and invest in available assets. CoinShares has over £2 billion in assets under management (as of October 2022)
Services and products:
- Exchange-traded products (ETPs)
- Active venture & income-generating strategies
- Indices and Benchmarks
- Expert consulting;
- Comprehensive services in capital markets.
CoinShares offers easy access to trading digital assets like Bitcoin, Ether, Litecoin, and XRP.
Insula
Isula Investments is another crypto hedge fund based in London, UK launched in late 2019. Like all companies of its type, it offers services for cryptocurrency management. According to information on their website, Insula created a completely secure and decentralized platform for investors to purchase, store, and transfer their crypto funds to any place on the globe. Isula reportedly has roughly 2,500 users and has managed a £50 million turnover.
The project supports deposits via Ethereum and Polygon Networks. Users mint tokens in exchange for their deposits and profits as the fund grows. Here are some features:
- Insula offers its own token (ISLA) that supports the decentralized protocol. management environment;
- Investors have complete control of their funds;
- All transactions are completely transparent at all stages.
The company offers two types of investor membership:
- Insula investment management (members only pay a 30% performance fee).
- Insula Premium (costs 500 ISLA per year).
Nickel Digital
Nickel Digital is a digital currency manager based in London and founded by investment market experts with years of experience from the most prominent banks and hedge funds. It is one of the few UK cryptocurrency funds regulated by the Financial Conduct Authority (FCA).
Nickel Digital uses its arbitrage hedge fund strategy to take advantage of fluctuations in prices for the most viable assets. The company also provides an Alpha Fund dedicated to generating non-correlated returns irrespective of market conditions. Here's a clearer breakdown of features:
- Nickel Digital offers digital fund management services for institutional investors.
- Investors have access to a number of index-monitoring tools.
- Offers secure and transparent access to major crypto assets.
- In order to start investing, investors need to complete a form on the website and provide contact information.
Crypto Global Management
This is yet another London-based digital currency investment manager on our list. Crypto Global Management was founded in 2017 by a strong team of experts with extensive experience in blockchain and asset management.
- CGM offers the services of digital currency management and crypto portfolio management;
- Active and passive crypto strategies;
- Protection of digital funds and complete transparency of services
- Investors choose options suitable to them personally.
How to Invest in a Crypto Fund
Compared to individual investors, a fund’s team has more possibilities to track information on cryptocurrency markets. And that’s quite important, taking into account the volatility of these markets. Besides, these companies usually have access to insider information because it’s likely their experts worked at stock markets or were involved in the development of crypto projects.
That being said, dealing with these companies is often fraught with risks. After all, to make an investment, you have to completely trust the fund professionals. This is why doing thorough research before making such an investment is a must. Make sure you are dealing with experienced, competent professionals in a secure and transparent investment environment.
Here are a few things to consider:
- The team. The cryptocurrency fund founder must have a solid background. More often than not, a simple Google search might reveal quite a lot of useful information. Also, it might be best to check if the company holds any form of regulatory license.
- Investors. If there are other investors willing to entrust their funds to this company’s experts, it says volumes about the company itself. Of course, these investors must have some experience too. Look for testimonials and reviews.
- Fund’s age and dynamics. The longer it stays on the market the more reliable it probably is.
- Profitability. For a potential investor, it’s absolutely natural to go by the fund’s profit margins. Compare the company’s profit margins with those of other funds.
- Transparency. Any investor must have access to their investment portfolio. If you are investing, it’s your right to know what cryptocurrency and in what amounts you have at the moment.
Once you make sure that you’ve found the crypto fund that is really reliable, you may also consider using online asset managers like Tokenbox. Projects of this kind make it very easy to work with cryptocurrency funds.
Conclusion
The volatility of the cryptocurrency market raises doubts about the productivity of the majority of existing cryptocurrency funds. However, with proper research and careful selection, it is possible to find reliable cryptocurrency funds in the UK. Choosing the right one may ultimately make this kind of investment the easiest and most convenient both for new and experienced investors.
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