As we watch the world go nuts over cryptocurrencies, many entertain bullish expectations while some say digital coins are merely a new bubble, soon to burst with the rest of blockchain craze. How to chart out these new lands and not get lost? In “real” world, it’s the job of hedge funds to manage and balance risks. In the world of cryptocurrencies, there are so called CTF (Coin Traded Funds) to perform the task.
Buying and safely storing a diverse bulk of digital assets presents a daunting task, especially for beginners. It’s not so much the technical side of things that 's hard to figure out, but rather the hard work of keeping constant tabs on the fast-evolving market, including tracking new currencies. Every altcoin is based on a unique business model, and the initial goals and business strategies define its market dynamics, prospects, and the corresponding attention from the investors. Lately, the market has witnessed a plethora of “empty’ crypto-coins with no definitive business model or substantial growth potential. A clearer understanding of the situation, in turn, requires a deeper dive down the coin market: keeping tabs on the latest news and at the same time, deep, careful analysis of every new opportunity.
Performing a technical analysis of the market is a time waste in the eyes of traders. The market of cryptocurrencies today is mostly irrational and strongly driven by psychology, leading to the high volatility of individual currencies. It’s hard or impossible to automate the management processes: standard algorithms, like those borrowed from stock traders, simply don’t work at the current stage of the evolution of crypto-currencies - this means no automated trading of crypto-coins for now. Is there a strategy out there to mitigate the risks of volatility?
One way to do that would be forming a diverse portfolio of many digital assets. A particular kind of funds, Coin Traded Funds, or CTFs, offer just that option. CTF is a new form of an investment fund which fills its portfolio exclusively with tokens, such as bitcoin, ether, Dash, ripple, and others.
Such funds offer balanced portfolios that alleviate the risks of investing in specific currencies, enabling investors to profit from the growth of the blockchain ecosystem as a whole.
Why they’ll grow
When we say, we believe in the long-term potential of crypto-currencies we don’t mean the short-term hype but rather the natural, more organic spreading of the blockchain. The society will long remain fascinated by the tides and ebbs of the crypto-coins, but at the fundamental level, we see an overflow of money from the more traditional segments of the economy and out into the wider digital world. This is largely enabled by blockchain, a technology of distributed ledgers that transmits any value, from money to shares, to land titles. This is why crypto-economy is the new stock market.
When our fund invests in a portfolio of crypto-currencies, it essentially invests in the new paradigm. A token fund is an index for the entire blockchain economy. Believe in particular currencies or don’t, nitpick on their limitations and the scalability of their business models, but the overall growth of blockchain is a fact you can’t deny.
CTFs vs. ETFs and hedge funds
CTFs possess certain attributes of both ETFs and hedge funds. ETFs are traded, that is their whole point. Coin Traded Funds are cryptocurrencies themselves, so generally, they are listed on the principal exchanges. Unlike traditional ETFs, CTFs have more flexibility in shaping their investment strategy. ETFs compose their indexes from a fixed set of stocks that further down the road prevents the fund from actively managing its assets, like buying futures or drastically overhauling the portfolios. CTFs, in this regard, are more like hedge funds, enabling a lot more proactive managing approach.
There are many varied investment strategies in the cryptocurrency market. E.g., we at The Token Fund are very active when it comes to ICOs. Hedge funds have financial thresholds that bar small time investors from partaking. Unlike that, ETFs and CTFs have no such obstacle and thus can serve both experienced and beginner investors.
As a rule, hedge funds charge a share of profits when he strategy yields said profits. CTFs charge fixed % upon the purchase of shares.
Investment process
A fund composed of crypto-currencies, CTF is itself a crypto-currency. Buying initial shares in a CTF means purchasing a certain number of the fund’s tokens (coins). Usually, CTF tokens (like ETFs) are publicly traded, but in some cases, it can be as easy as opening a wallet in the system and topping it up with ETH or BTC to buy the tokens.
The largest part of the assets is stored in “cold” wallets while the volume of publicly traded coins is minimal. CTFs tend to stick to the most reliable crypto exchanges. Such measures enable funds to retain responsibility for the security of its assets instead of relying on third parties’ goodwill.
All movements of assets are performed via wallets using multi-signatures. Each action needs to be approved by at least two managers. This allows funds to minimize such risks as human error and hacking.
Funds’ capitalization is calculated in USD, BTC, and ETH, with the USD figure being the key indicator. This decision has the customers’ best interests at heart: so long as the money comes from and goes back into the classic economy, we need a unified performance indicator that everyone can agree on.
CTFs' balanced portfolios help investors alleviate the higher risks of investing in individual crypto-currencies. This means investors benefit first and foremost from the growth of the blockchain as a whole. Higher volatility of this market is one of the primary hindrances for new investors, and CTFs (The Token Fund, Satoshi Fund, TaaS) are focused on fixing that issue.