Traditional hedge funds are an excellent choice for investors who want to minimise their risk exposure. Many investors believe that the fact that Bitcoin is growing at an exponential rate while also becoming more accessible than ever is a testament to its long-term viability. Because of the advent of cryptocurrency hedge funds, investors can now outpace the market, resulting in higher returns. Compared to investing in a cryptocurrency exchange, an ETF, or a cryptocurrency index fund, this is a significantly more complex investment strategy.
What are cryptocurrency hedge funds?
While an exchange, like a cryptocurrency index fund, is similar to a fund in that it invests in large groups of underlying securities, a hedge fund is a different way for a person to invest in a large group of underlying securities or digital assets. Teams of expert investors have a hand in managing these, as do frequent rebalancing and constantly updated analysis. Profits from these market experts’ maneuvers are received by investors. Currently, there are two kinds of cryptocurrency hedge funds: those that take long positions, and those that take short positions. Portfolio managers who manage portfolios that exclusively contain cryptocurrency, and portfolio managers who have incorporated cryptocurrency into a portfolio that includes other asset types.
Market players employ a combination of discretionary and systematic investment strategies to counter crypto hedge funds constantly. Many hedge funds that invest in cryptocurrencies are for anyone, whether they want to benefit from Bitcoin‘s growth or not. Some people believe that having a portfolio that pays out frequently and regularly (having a good mix of the top-performing altcoins as well as Bitcoin and Ethereum) is true for hedge funds too.
How do crypto hedge funds work?
When it comes to discretionary and systematic investment strategies, we know how a hedge fund manager can employ either of these approaches. With this methodology, the fund manager has complete control over the allocation of investment decisions. Even though the systemic approach makes use of computer models to handle trades, the method itself is based on complex mathematical models.
Even though the discretionary method supports the vast majority of these funds statistically speaking, it is statistically understood to be less risky because the entire process is automated.
Cryptocurrency hedge fund types
Crypto funds currently exist in two varieties: those that control the market and those that trade alongside the big players. The first type oversees cryptocurrency portfolios that have other asset classes like stocks, bonds, real estate, and commodities, whereas the second class manages cryptocurrency portfolios that have other asset classes like stocks, bonds, real estate, and commodities. Data from 2018 shows that the number of operational cryptocurrency funds increased from 666 to 804, and 355 of them were hedge funds. This means that as of right now, the majority of these funds are currently invested in Bitcoin and Ethereum.