During the last 18-months, there has been an explosion in crypto funds. The crypto space was originally driven by the larger entrepreneurial and high net worth investor groups.
However, institutional investors are now entering the fray. Increasingly, the preferred investment route for crypto investments is the collective investment scheme structure.
The ‘investment fund’ structure not only offers the crypto strategies a degree of regulatory control and counterparty oversight; it also provides a transparent investment vehicle crucial for attracting the professional investor community.
The fund structures vary depending on the jurisdiction and the nature of the investment strategy. They include the classic open-ended collective investment scheme (CIS), a limited partnership (LP) or a limited liability company (LLC).
Our experience is that clients seek the classic CIS route, as international professional investors are familiar with this structure.
Fund jurisdictions also vary. However, analysis shows that in terms of the offshore fund arena, Cayman Islands is the preferred jurisdiction.
In terms of onshore (non-USA) the EU jurisdictions are favoured (Malta, Gibraltar, Channel Islands, Lichtenstein).
The US is probably the largest crypto fund jurisdiction, certainly in terms of AUM.
The investment fund structure provides the ability to operate many different crypto investment strategies. The range of strategies that Ifina is seeing from client managers is extremely varied.
Cryptocurrency & Altcoin Trading Strategies
Many of our clients are former FX traders and consider cryptocurrencies as just another ‘currency’. They apply their FX trading techniques and systems to their crypto trading.
‘Crypto Index’ Strategies
Many crypto funds operate an investment strategy which create a ‘crypto index’, or replicate an existing crypto index, such as the CCI30 Index.
Crypto Venture Capital & Private Equity Investment
VC and PE investments into crypto start-ups is a major strategy adopted by the new crypto funds coming onto the scene. The global growth in the array of crypto businesses has attracted a great deal of VC and PE interest and investment. Whether it is businesses involved in blockchain development, crypto mining enterprises, online casino and gaming – VC and PE investors are lining up to invest.
Initial Coin Offerings
Several of our client funds concentrate their investment strategy on taking up the constant stream of Initial Coin Offerings and building a portfolio of global ICOs.
Bitcoin lending is another crypto strategy we have come across. Clients who already have a portfolio of Bitcoins which they intend to hold for the long-term can lend these through specialist platforms.
Crypto Fund Of Funds
With the growth of crypto funds operating a multitude of strategies, we are seeing the emergence of ‘Crypto Fund Of Funds’. The Crypto FoFs provide diversification of investment strategies and access to some of the major managers in the digital asset sector.
Crypto Mining Investment
Crypto mining basically provides the bookkeeping services to the global coin network. Mining is essentially 24/7 computer accounting for verifying transactions. The growth in crypto mining businesses is growing rapidly to cater for the huge growth in cryptocurrencies and altcoins. A number of our clients are actively seeking to invest in crypto mining businesses, either by way of a private equity investment or by trade finance lending for extraordinary returns.
The above are just a few examples of the crypto investment strategies we are seeing. Some managers are operating multiple strategies in this volatile crypto environment to provide risk diversification.
Here at Ifina, we offer clients a full crypto fund service, including crypto fund formation and ongoing fund administration and accounting services.
Do you need help setting up your investment fund? Email firstname.lastname@example.org and we can arrange a call. If you have any questions, please leave them in the comments below.