The cryptocurrency market traded an average of $29.2 billion worth of coins in July 2023. It’s a good indicator of the liquidity of the cryptocurrency market. Liquidity makes it convenient to buy and sell cryptocurrency without worrying about the price moving against you.
When choosing a crypto fund, consider its liquidity. A fund with high liquidity will have many buyers and sellers, making buying and selling shares more convenient. But a fund with low liquidity makes it more difficult to buy and sell shares due to its small number of buyers and sellers.
In this guide, we will discuss long-term investment strategies for cryptocurrency funds. We will also provide tips on choosing a crypto fund that is right for you. Read on for more insights:
What Are Crypto Investment Funds?
A crypto investment fund is a type of investment fund that invests in cryptocurrencies. Crypto investment funds can either have an active or passive management team. The choice between the two depends on the freedom and transparency you want to enjoy.
Actively managed crypto investment funds have investment professionals who make investment decisions. Passively managed crypto investment funds track a particular cryptocurrency index. The crypto index can be the Bitcoin Price Index (BPI) or the Ethereum Price Index (EPI).
Either way, passively managed crypto funds tend to match the performance of a market index. They work well for those who have a long-term strategy. In contrast, actively managed funds can help you capitalize on short-term wins.
Crypto investment funds allow investors to diversify their investment portfolios. They make it easier to invest in different cryptocurrencies. Doing this can help reduce risk.
Since most of them have a team of experienced professionals backing them, they can help you make investment decisions and manage risk. They also give you access to new investment opportunities. You can use them to invest indirectly in a futures market or get investment products with great cryptocurrency exposure.
Note that the cryptocurrency market is always volatile. As such, crypto investment funds can lose money. Cases of fraud in the cryptocurrency market are also on the rise, so you should be careful when investing in crypto investment funds.
The cryptocurrency market is undergoing regulation. This can add to the risks of investing in crypto investment funds. Research and understand the risks before investing in any crypto investment fund.
Why Crypto Funds are Becoming Popular
The cryptocurrency market is growing quickly and catching the eye of many investors. Crypto funds are one way for investors to get into the cryptocurrency market. They offer several advantages over buying and selling cryptocurrency directly.
There’s an increase in new cryptocurrencies launched all the time. Tracking different cryptocurrencies and making smart investment decisions can be difficult. Crypto funds offer investors exposure to a diversified portfolio of cryptocurrencies.
Moreover, more and more people are looking for options to invest in cryptocurrency. Many investors want to invest in cryptocurrency. But they are not comfortable buying and selling cryptocurrencies themselves.
Investors can use crypto funds to access cryptocurrency. They won’t have to deal with the technical aspects. It’s because the funds handle the buying and selling of cryptocurrencies.
Types of Crypto Funds
Note that there is no one-size-fits-all answer for which type of crypto fund is right for you. The best type of fund will depend on your investment goals and risk tolerance. Do your research and understand the risks before investing in any crypto fund.
Passively Managed Crypto Funds
A passively managed cryptocurrency fund tracks a specific cryptocurrency index. The index may be the Bitcoin Price Index (BPI) or the Ethereum Price Index (EPI). It buys and sells cryptocurrencies to track the performance of the index.
Passively managed crypto funds can be a good option for new investors. It favors those who want to invest in cryptocurrency but don’t want to manage their investments actively. With this kind of freedom, you can diversify your investments with ease.
Since they are typically less expensive than actively managed funds, they can save you money on fees. They are also not as risky as actively managed funds. You can use them to invest in different cryptocurrencies, which can help to reduce risk.
On the downside, passively managed crypto funds may not outperform the market in the long run. Since the cryptocurrency market is volatile, even passively managed funds can lose money. Passively managed crypto funds also give investors less control over their investments.
Actively Managed Crypto Funds
An actively managed crypto fund comprises a team of investment professionals. These professionals make investment decisions based on their research and analysis. They can buy and sell cryptocurrencies to try to outperform the market.
Actively managed crypto funds are also great for new and experienced investors. But they favor those who want to be active in their cryptocurrency investments. With this level of transparency, you can know how your investment is performing.
They can outperform the market if the fund managers make good investment decisions. You also enjoy more control over your investments as an investor since you can choose the fund manager and the investment strategy. You also access new investment opportunities that may only be available to some investors.
On the downside, actively managed crypto funds charge higher fees than passively managed funds. They are also riskier than passively managed funds, as they are more likely to lose money in a market crash. It’s possible for them to lose money depending on the cryptocurrency market’s volatility.
Hedged Crypto Funds
A crypto hedge fund uses derivatives to hedge against the volatility of the cryptocurrency market. As such, it tries to reduce risk by taking on opposite positions in the cryptocurrency market. It can be a good investment option, but market volatility is a concern.
Crypto hedge funds give investors more control over their investments. They allow you to choose the fund manager and the investment strategy of your liking. You also access newer, exciting investment opportunities than individual investors.
They can be an expensive option since they charge higher fees than non-hedged funds. A cryptocurrency hedge fund is also riskier than a non-hedged one, as it is more likely to lose money in a market crash. Their liquidity varies with the volatility in the cryptocurrency market.
Factors to Consider When Choosing a Crypto Fund
Be careful when selecting a crypto fund because the cryptocurrency market is unstable and uncertain. Crypto funds are a new type of investment, and their long-term performance is still uncertain. Here are some of the factors to consider when choosing one:
Ensure the fund’s investment strategy aligns with your investment goals and risk tolerance. If you want to lower risk as a long-term investor, pick a crypto fund that invests in many cryptocurrencies. But if you want to make quick profits and are okay with taking risks, choose a crypto fund that trades unpredictable cryptocurrencies.
Crypto funds typically charge fees for their services, so comparing fees before you invest is important. Some crypto funds charge a management fee, which is a percentage of the fund’s assets under management. Other crypto funds charge a performance fee, which is a percentage of the fund’s profits.
Look at how the fund performed in the past and its risk-adjusted return. If a fund invests in many different types of cryptocurrencies, its performance should stay consistent. But if it trades volatile cryptocurrencies, its performance can be more unpredictable.
The management team runs and oversees the operations of the crypto fund. Do your research and ensure that the management team has experience in the cryptocurrency market. Check whether the management team has a good track record of managing money.
Crypto funds are subject to different regulations depending on the jurisdiction. So, ensure that the crypto fund you’re considering complies with the regulations of a reputable regulator. This way, you can protect your investment in case of fraud or mismanagement.
Long-Term Investment Strategies When Using a Crypto Fund
Investing in cryptocurrency is not just about buying a bunch of coins. A strategy can help you decide what cryptocurrencies to buy, when to buy them, and how much money to invest. There are many different strategies that you can use, each with its risks and benefits.
Buy and Hold Strategy
You can buy a digital asset and hold it for the long term, regardless of short-term fluctuations in the cryptocurrency price. Buying and holding can work for investors who believe in the long-term potential of cryptocurrency. The main idea is that short-term changes in cryptocurrency prices don’t matter in the long run.
When using this strategy, choose the right cryptocurrencies. Research on coins with a high potential to succeed in the long term. You should also be ready to hold your cryptocurrency for several years.
You can invest a fixed amount of cash into cryptocurrency regularly using dollar-cost averaging, regardless of price. It can help smooth out the impact of volatility and reduce risk. Dollar-cost averaging is a perfect strategy for investors who want to lower the risk of investing in cryptocurrency.
By investing a fixed amount of money regularly, you buy more cryptocurrency when the price is low. You’ll also buy less cryptocurrency when the price is high. Doing this can help average out your purchase price and reduce your risk.
Earning a Yield
With this strategy, you get to earn interest on your cryptocurrency holdings. You can do this through staking, lending, and yield farming. Staking lets you lock up your cryptocurrency in a network to help secure it and earn rewards.
But with lending, you lend your cryptocurrency to other investors in exchange for interest payments.
Yield farming is a process of participating in DeFi protocols to earn rewards. DeFi protocols are financial apps that let you lend, borrow, and earn interest on cryptocurrency without an intermediary. The rewards will depend on how much cryptocurrency you deposit, how long you deposit it, and how the DeFi protocol performs.
If you want to invest in undervalued cryptocurrencies, try value investing. Value investors look for cryptocurrencies trading at a discount to their intrinsic value. They believe that the price of cryptocurrency will eventually reflect its true value.
To invest wisely in cryptocurrency, grasp its basics and the wider market. Then find a digital asset trading at a discount to its intrinsic value. Since value investing is a long-term strategy, it takes time to find undervalued assets and to profit from them.
When staking, you lock up your cryptocurrency in a network to help secure it and earn rewards. Certain cryptocurrencies need you to operate a node. Other cryptocurrencies let you stake coins on an exchange or in a staking pool.
Either way, you’ll lend it to the network to help verify transactions and maintain the blockchain. In return, you’ll get new cryptocurrency. The specific amount of cryptocurrency you earn depends on the cryptocurrency you stake and the time you stake it for.
Buying the Dips
As a crypto investment strategy, buying the dip involves buying cryptocurrency when the price is low. It can be a good way to get a good deal on cryptocurrency. But it is important to be patient and wait for the right opportunity.
Though buying the dips can be risky, it can be profitable if you understand the cryptocurrency market well. One way to buy the dips is to set price alerts on your favorite cryptocurrencies. This way, you will know when the price of a cryptocurrency reaches a certain level that’s appealing to buy.
You can use technical analysis to find support and resistance levels in the cryptocurrency market. These levels can help determine when to buy the dips. You should also stay up-to-date on news and events affecting the cryptocurrency market to decide when to buy the dips.
Looking for a Reliable Crypto Fund?
When choosing a crypto fund, consider its investment strategy, fees, track record, management team, and regulatory status. This way, you’ll find one with the potential to grow your investment over the long term. Diversify and rebalance your portfolio to match your investment goals and cope with risk tolerance changes.
TrueCode Capital is a great option if you want to invest in cryptocurrency with confidence. Our algorithmic approach to managed risk and professional management makes it possible. Let’s help you get on a path to long-term growth and financial security today. Get in touch today!