Crypto funds: whether to invest and how to recognize fraudsters

Crypto funds: does it worth to invest and how to recognize fraudsters

The emergence of crypto funds became predictable, as soon as there was a tendency to the growth of the cryptographic market. Now they are opening more and more and the question of whether or not to invest money there is a concern for more and more potential investors. Many people have a general idea about crypto funds, because of which they can not dispose of their capital in the most profitable way.

What are crypto funds

In fact, the crypto fund assumes an investment partnership between the head of the fund and the investor who entrusts the management of the cryptocurrency to the fund. The purpose of the partnership is to make a profit by successfully realization of investors’ assets.

At the head of a crypto fund is, as a rule, a financier who has experience in asset management or a group of such people. These can be traders, consultants, analysts, etc.

Roughly speaking, crypto funds are founded by people who know how to manage crypto assets, but do not have such a number of assets that, if successfully placed, will bring substantial profit. They attract investors to attract these assets.

How and why did crypto funds appear

Many cryptocurrency holders are not professional investors and are not familiar with financial management tools, as well as with risk management.

Most of them are simple miners, traders or just cryptocurrency buyers, who are faced with the problem of how to manage the existing cryptocurrency so that it brings the maximum income. Some prefer to solve it on their own and invest in the ICO or in new currencies, which, in their opinion, have good prospects. However, due to lack of investment experience, they often burn out.

A similar problem existed in the field of traditional economics and its solution was the emergence of investment funds. The cryptosphere is developing in the same way as the traditional economy.That is why the emergence of crypto funds has been expected.

On the other hand, the appearance of crypto funds was influenced by professional interest in Bitcoin. Traditional stock exchanges, mutual funds and hedge funds are regulated by the state apparatus and most cryptocurrency countries have not yet recognized them, that is why their appearance in the assets of traditional funds and on exchanges is not always possible. Crypto funds turned out to be the only alternative that allowed financiers to fully work with Bitcoin and other currencies.

How crypto funds work

For example, hedge funds work only with professional investors and set a high investment threshold. Anyone can become an investor in most crypto funds and the minimum investment threshold is often several hundred dollars. The largest funds that operate on this principle include the giants Polychain Capital or Pantera Capital.

Paim are their own tokens. The investor buys them and makes a profit on them from the activities of the fund. The fund can pay this profit to it or the investor can reinvest it. Such funds assume the growth of the rate of the fund’s tokens and the investor has the opportunity to return the share at the current price, which, if the fund is successful, will be higher than the one that existed at the time of the investment. The most famous example of such a fund is Blockchain Capital, which issued tokens in the amount of $ 10 million or is familiar to TaaS from CIS investors. The “shares” of the last, however, are mostly traded on the secondary market.

An agreement is concluded between the fund and the investor as a rule. It determines the percentage of profits that the fund receives and the percentage that the investor receives.

The percentage of the fund’s profit is also called the commission. Usually it is about 5% of income, but this figure varies in different funds. The percentage of monthly payments to investors also fluctuates (sometimes it is 5%, sometimes it reaches 20%).

Each crypto-fund has its own investment strategy, which seems to its head the best in terms of making a profit. Most of the existing crypto funds make a profit managing the capital of investors as follows.

Funds headed by experienced traders often use traditional market strategies. For example, they play on crypto exchange stocks, buying not very promising, but undervalued cryptocurrencies and selling them after a short time. Either they buy cryptocurrencies, the rate of which in the short term tends to grow significantly (regardless of the real prospects of these currencies) and then sell them when the value of the currency begins to exceed its real value.

The main advantage of cooperation with crypto funds is the professional management of cryptocurrency assets. With a good investment strategy and the professionalism of the team the benefits are substantial.

Also advantage is the concentration of significant amounts of cryptoactive assets in the hands of the manager. For example, if a clearly promising currency appears in the market the crypto-fund can buy most of the coins in the early stages, thereby ensuring greater profitability.

The profitability of crypto funds for 2016 was not less than 1000% per year. It reached 3000% per year in some cases and even exceeded this figure. For example, The Token Fund, popular in the ranks of investors from the CIS, brought 300% of profits in just two and a half months.

Cryptocurrencies are not widely recognized and the state has no opportunity to influence the work of funds or protect investors. Often, the investor does not know to whom he gives money and most of the newly established crypto funds are not registered anywhere. Everything is based on investor confidence in the head of the fund and its other representatives.

Sometimes scammers act directly to collect money from investors and then disappear. It is usually impossible to find them, since they fully use such an advantage of crypto currencies as anonymity of transactions. It also happens that they provide the investor with information about themselves, but after the disappearance, it turns out that this information is not true. However, even if fraudsters are detected, it is difficult to influence them.

Sometimes more sophisticated schemes are implemented. For example, one person establishes a fund and organizes an ICO, but for potential investors it appears that the fund and the ICO are not related. The fund attracts investors, after which it invests in the ICO under the face of the fact that the project is profitable. As a result, the ICO turns out to be “unprofitable”, the head of the fund informs investors that they supposedly knew about the risks, closes the fund – and remains with the capital of investors. By the way, the fund after that can even continue to operate.

Investors are not confronted with scammers often, but simply with incompetent individuals who, in words, promise to increase cryptocapital, but in fact suffer losses. There are a few professional financiers in the cryptosphere, many are inexperienced and earnings seem easy. The foundations are founded by all comers, attract investors, since there are few professional investors in the cryptosphere. They make mistakes when evaluating cryptoactive assets in which to invest and the fund goes bust.

Notwithstanding the foregoing, if you focus on a number of indicators, you can minimize the risk of entering into a partnership with a scam or foundation headed by incompetent individuals. However, one hundred percent reliable funds do not exist anywhere — not in the traditional economy, much less in the cryptosphere.