How has the proliferation of cryptocurrency investment funds changed the industry?
Crypto funds can also be categorized based on their investment strategies. For instance, some funds may invest exclusively in Bitcoin, while others may invest in a diverse range of cryptocurrencies or focus on investing in tokens that have promising underlying technology or are backed by established companies. Additionally, some funds invest in crypto-related companies like mining or trading firms.
“They’re usually composed of industry veterans, so they know what trends to invest in to drive the most value for the sector. Their levels of investment and capital mean they can offer a more comprehensive level of risk management that otherwise could not be cultivated by individual traders.” Deng Chao, CEO of digital asset investment group HashKey, told Cointelegraph, “Crypto funds can impact market liquidity in many ways. Firstly, by helping projects to scale and grow, crypto funds help take projects to a level where they have enough users and network effects to have more liquidity. Typically, better network effects equal better velocity, which equals more liquidity in the market.”
“When funds trade derivatives and similar instruments on major platforms like BitMEX and Deribit or participate in DeFi platforms like Aave and Compound, the entire market’s liquidity rises for the tokens traded and adds to the market stability, which benefits everyone,” he said. Another way crypto funds impact the market is by providing access to smaller investors. By pooling money from multiple investors, crypto funds can provide access to the crypto market for smaller investors who may not have the resources or expertise to invest in individual cryptocurrencies. This can help democratize crypto market access and increase its overall reach.
Ajaja said, “The main challenges faced by these crypto funds revolve around maintaining compliance in an ever-changing environment. It takes a proactive, concerted effort to ensure consistent compliance and active participation with these governing bodies that make the rules.”
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