Thinking about buying Ethereum (ETH) to make some money with it? Then you probably have heard about crypto trading on spot markets and margin trading instruments. Nevertheless, we’ve got something that will definitely stick to your mind. In this article, we’ll talk about crypto funds, a comparingly new instrument for investing in digital assets that suits most institutional players. The method requires a deep understanding of all the aspects of the crypto industry, starting from the blockchain processes to financial instruments like futures and CFDs.
However, if you’re just starting out your journey to the world of the digital economy, this info will definitely enrich your own knowledge base. And who knows, maybe it will engage you to dive deeper into crypto trading.
What are the crypto funds?
Cryptocurrency funds are pools of capital that many different people pay into. They are quite similar to traditional portfolio investments, like hedge funds, with the main difference that they consist of digital assets. Hold on searching Google to find out the meaning of all these terms, we’ll sort them all out.
1. Portfolio investments
An investment portfolio is a set of assets owned by a person or institution. Traditional finance portfolios may include bonds, stocks, fiat currencies, cash, precious metals, and so on. The crypto investment portfolio consists of different digital coins and tokens. It’s important that the portfolio has a good mix of assets to maintain balance. This can help to foster capital growth and minimize or at least control risk.
2. Investment fund
Some investors pool their funds, or should we say portfolios, to increase the potential profit. By investing in the digital asset funds, you actually join those other investors who put their funds before. This is where a human factor plays the main role because people who join the investment fund should trust each other.
3. Hedge funds
Before we go to the explanation of hedging funds, let’s clarify what does hedge mean in terms of cryptocurrencies. Hedging your funds or investment is a way of minimizing risk, mostly by opening offset positions. This strategy is best implemented when trading on margin or with instruments like CFD and options. Because you can always speculate on the downtrends by simply opening a short position.
You’re probably wondering if you can hedge your investment when trading on the spot markets. Well, let’s suppose you have some crypto and fiats on your balance. In case of a market uptrend, you can sell your crypto with a profit. And if the price of a digital asset goes down you can buy some tokens expecting the future spike.
So where is the main component of hedging, mitigating your risks? What would you do if the value of your portfolio keeps reducing?
Let’s turn back to hedging the crypto funds. We’ve already found out that their main strategy is mitigating the risks and logically, they need the active participation of all the parties. First, it requires your efforts as an investor to make a deep research of the crypto industry and hedging strategies. Also, keep in mind that hedge funds are private and open only for qualified and wealthy investors.
The starting capital of such funds is fluctuating around $100,000-$500,000. Second, it requires fund managers to implement different strategies so as to make a good return and mitigate the risks.
Still, this wide latitude may be very risky. The facts show that hedge funds have been involved in the most dramatic financial blow-ups. On the other side, the flexibility of strategy has led many talented managers to amazing long-term returns.
4. Venture capital funds
Venture funds are investment associations that are focused on innovative projects and startups in the industry (ICO, for example). The distinguishing peculiarity is that they invest money in projects with a high degree of risk, as at the same time such projects can bring a super profit. Ventures are beneficial for startups as they can go public more effectively with institutional investors than with retail users.
As a rule, venture investors prefer the diversification of their portfolios. Thus, they fund multiple startups, expecting that at least a few of them will boost the return. And here is where the Ethereum blockchain with the emerging DeFi sector comes helpful.
Why digital asset funds choose Ethereum?
Major investment funds have long-term goals, so they carefully choose the asset in which they will put up. Without a doubt, Bitcoin is the most popular cryptocurrency among funds. Despite the numerous other reliable crypto projects, the first-ever existed crypto has proven its stability and high investment potential. Still, one of the rules of a successful investment strategy is the diversification of your portfolio. And Etherereum is a second one by popularity as well as market capitalization.
By the way, if you’re not ready to spend colossal amounts on crypto investment funds, you can start with buying some little amount of crypto. To save your time looking for a reliable and multifunctional exchange, have a look at CEX.IO. It has a handy cryptocurrency exchange app and also offers trading crypto on margin with CFD.
Here are some reasons why people invest in Ethereum projects
- First of all, ETH is a token with history. When you do your research about the asset, you can quickly find millions of reviews, information about the founders, needed technical documentation. In other words, everything you need to make sure that your funds will not disappear one day after you buy ETH (like it happened to many fake coins).
- Ethereum is one of the most popular crypto and thus, one of the most liquid. You can easily exchange ETH for hard cash or other crypto with comparingly low fees. The same applies to the tokens of young DeFi projects. Since their tokens run on the widely used ERC-20 standard, many exchanges can easily add them to their marketplace.
For instance, at CEX.IO you can trade different ETH pairs and exchange DOT to USD. Additionally, crypto exchanges, as well as investment funds, make their own due diligence before adding the new token. So you can be sure that the asset is reliable.
- Just like many other digital currencies, the ETH token has a transparent inflation plan. The asset runs on the infinite blockchain system, and it’s hardly possible for your holdings being deflated.
- Ethereum goes in step with the evolving industry. We can call it a father of Decentralized Finance and NFTs, relatively new and hyping products. The rising popularity of DeFi and NFTs causes unpredictable swings in price and market volatility, which may create earning opportunities.
Also read: Top 5 Reasons Why You Should Invest in Gold
