The era of investment in cryptocurrency and Blockchain startups began in 2013 and achieved its pick of $290M in 2016. Now the era of crypto funds is coming.
What are Crypto Funds?
Investments in the certain cryptocurrency or ICO is called venture-style investing. When one invests into one certain ICO his success totally depends on the future on this certain project. Cryptocurrencies are extremely volatile and as a rule it’s very difficult to predict the future of a start-up. That’s why venture-style investing is traditionally considered to be high risky.
To avoid high risks more and more investors prefer to put their money not into the certain cryptocurrencies or ICO projects but into cryptocurrency funds.
To define such term as cryptocurrency fund let’s say that it’s a pool of professionally managed capital, available to outside investors, where the majority of assets are invested in publicly tradable cryptocurrencies – such as bitcoin, ethereum and altcoins as well.
The Main Trading Strategies Used By Crypto Funds
- Manual vs Algorithmic Trading
Making profitable trades is the only way for crypto fund to make returns. For example if the fund buys Bitcoin in 2015 and the sells it in 2017 it will make profitable trade.
To figure out which trades can be profitable and to plan them crypto funds use two main strategies – manual and algorithmic one.
When using manual trading strategy managers of the fund make their decisions on buying or selling the certain token hands-on –relying on their knowledge, experience and intuition.
Algorithmic (or automatic) trading means that traders use special computer software that executes the rules automatically when the conditions are met using real-time market data. Algorithmic trading is mainly performed by trading bots which can buy and sell much faster than humans.
It should be said that both approaches have their strengths and weaknesses, and the best approach is typically a combination of the two.
- Technical vs Fundamental Analysis
Technical and fundamental analysis are the two most common ways used buy crypto funds of predicting the trend of the price of a cryptocurrency.
A technical analysis bases mainly on exploring price and volume graphs and making trends. The main idea of a technical analysis is that crypto market is predictable and the certain patterns of behavior of market participants tend to repeat.
A fundamental analysis takes into consideration a lot of different factors that can take influence on the price of a cryptocurrency like conference announcements, forks, as well as new coin listings, technology patents, user base, size of network, and token utility. It considers the intrinsic value of a cryptocurrency or asset to predict its long-term outlook and see if it’s currently over or undervalued. Technical analysis focuses on the “What” and fundamental analysis focuses on “Why.”
Typically, technical analysis is used for algorithmic trading and fundamental analysis is commonly used for manual trading.
Should You Invest in Crypto Funds?
If speaking about obvious advantages of crypto funds it should be said that investing into crypto funds is less risky than investing into the certain coins and ICO projects. Cryptocurrency funds allow investors to decline risks significantly. Instead of putting all eggs into one basket, taking part in a crypto fund you invest into several currencies at the same time. Some tokens could perform poorly but the raise in another altcoins will compensate it. Crypto fund investors make deal with the average result.
That’s why investment into crypto funds is quite an attractive option for those potential investors who feel rather excited about the world of cryptocurrency but haven’t tried it yet because of high risks and volatility.
At the same time crypto funds as every investment projects cannot guarantee that one will get profit and will not lose. So do proper research, weigh up all the pros and cons and make your personal decision.