If you plan on jumping on the blockchain investing bandwagon, hedge funds are your best bet, especially if you are new to investments, or if you don’t understand the world of the blockchain technology. With a hedge fund, you will have the opportunity to receive helpful advice from expert investors, and build a diverse investment portfolio. However, before you make any decisions, you need to learn a few things about blockchain investments.
What is blockchain?
While you don’t need to fully understand how blockchain works, you still need to know a little about it, to understand its applicability, and thus make informed investment predictions. Blockchain is a technology developed in 2009 by an anonymous person or group of people going by the nickname Satoshi Nakamoto. The tech works by allowing users to distribute information, without copying it. It was initially used to create the Bitcoin cryptocurrency, but it was later used for many other projects in different industries. Basically, blockchain uses cryptography to create a decentralized data system. The data is not shared in a single location. Instead, it is supported by the people who use the technology. The beauty of this tech is that it is not controlled by anyone, not by governments, not by corporations, or any other entities. As such, its value cannot be affected by inflation, by politics, or other world events. Moreover, it is highly secure, being almost impossible to hack.
At the moment, this tech is mostly used for cryptocurrencies. However, it can be applied for other projects as well and it is starting to be used by organizations from different industries. It can be used in education to develop innovative learning platforms. It can be used in the healthcare domain to provide a transparent and safe data storage solution. It can be used with any technology that is dependent of single points of failure like servers. It can be used for making real time modifications to documents or for sending legal documents in a secure manner. It can even be used as the foundation of an electronic voting system. You can read more about applications of blockchain in various industries. It is important to understand how blockchain can be applied in different industries, so that you can decide what companies have the potential to make a profit from this tech, and invest in those companies.
How blockchain hedge funds work
Most blockchain hedge funds work like normal hedge funds. However, they can have different investment strategies. There are certain funds that only invest in cryptocurrency. A Cryptocurrency Hedge Fund is a good option if you are looking for a quick return of your investment. However, crypto investments come with high risks, so make sure to choose some reputable advisors, so that you can put together a good risk management system. There are also funds that invest in companies that use blockchain technology. These are safer investments, but the profits will come slower with these investments, because blockchain tech is still in its early stages of development and it will take a while until it will generate consistent and worthy profits.
Evolution of blockchain hedge funds
To predict how the market will fluctuate, you need to familiarize yourself with the historical data behind the blockchain investments. These hedge funds have been around for a few years, and for the most part, they have generated massive returns of investment. However, don’t put all your eggs in the same basket, because cryptocurrencies are very volatile. In the first few months of this year, cryptocurrencies lost almost half their value. Bitcoin lost two thirds of its value within a couple of months. This has led to the closing of dozens of crypto funds, and not all the funds that closed were able to repay their investors. However, despite the plunging returns, crypto funds are here to stay, and many are experimenting with new investment strategies in order to minimize risks. Some are even using the blockchain tech itself to for Backoffice operations or for administrative tasks.
In June we also witnessed the creation of a tokenized hedge fund: APIS. This fund uses a proprietary trading strategy based on volatility. The fund has a complex management strategy which promises to generate profits in all market conditions. Moreover, the token-based investments are very convenient for the investors, as they eliminate many conventional investment barriers. The tokens are completely liquid, so you can sell then at any time, without having to deal with a lock-up period. This fund is also accessible to anyone, as it doesn’t have a minimum investment requirement.
How to choose the right crypto hedge fund
Once you have a basic understanding of the blockchain technology, you can start researching various funds to see which would best suite your investment goals. When comparing different crypto hedge funds, there are several factors that you need to consider. Firstly, there is the matter of reputation. You should seek a reputable fund that has been active for several years and which has generated consistent and satisfying returns. Secondly, there is the matter of the fee. You may not like the idea of paying an astronomical fee, but keep in mind that this money is spent paying expert investors and buying state-of-the-art software solutions for market data analysis. As such, it is better to choose a crypto hedge fund that generates high returns, even if they have an expensive fee. Last, make sure that the fund you choose works with a team that understands the blockchain technology, and who has sufficient experience managing these types of investments.