Traditional investors started to pay more and more attention on crypto assets. For instance, recently David Pakman, Venrock fund partner, said that he is really interested in investing in blockchain projects. Canvas Ventures have announced the same: they will focus on blockchain technology in 2018. Many major investors, however, want to invest directly in cryptocurrencies so there are giving their money to asset managers or trust them to cryptofunds. However, there are too many brand new unreliable funds, with no track record but promising huge profitability to any client. So how do you determine which crypto fund is worth trusting?
There are certain features which can clue investors or asset managers in that the crypto fund is actually just a risky venture with absolutely no validity. Here are just a few of them.
1) The website looks inexpensive
When you visit the fund web page, if you get the feeling that it has been made on Tilda or by a high school student, you know it is not valid. Other things to look out for: there is no user’s personal account, and you need to contact the fund manager to sign up. There is no history of the company or details on the portfolio diversification. There is no “Team” button, or there is, but you cannot see why you should trust the money to these people. Lastly, you can’t find the team on LinkedIn or you can, but they do not have relevant experience in finance, investment or crypto-industry.
2) There are no successful cases
You have chosen the cryptofund and have contacted the fund manager, but they are unable to tell you any specific stories. Sometimes it is justified – clients do not want to be revealed; however in this case the fund is worth trusting only if team members are respectable and if the team has existed for more than half a year. In all other cases, especially if you can’t find any media mentions about the fund in the internet – it is better to stay away.
3) There is no information how many cryptoassets they manage
Reliable funds enjoy to boast about the number of assets under their management. If crypto funds don’t have any information regarding the sum of money under their operation and managers state that this information is private, this might be a scam alert. Be careful and double check everything, before giving your money.
4) The forecast of profitability is either unrealistic or nonexistent.
Asset managers promise you to make 50% profitability monthly or they are just saying that they cannot predict anything but it surely will be positive growth. All of these should be red flags for the investors, considering the high volatility of the market. Also, many brand-new so-called crypto funds invest only in the most popular coins, and can predict the profitability only according to publicly available analysis on each coin trading trend. This is a scam alert as well – you do not need any fund to invest directly in BTC or ETH.
5) There is no representation of the cryptofund in social media
Maybe you have found the fund and it has a brilliant website with sufficient prognosis on profitability. However, you should check if the fund is active on social media, like Facebook and Twitter. Check out how many subscribers they have and how involved they are. Trust of social media community may be a form of guarantee.
6) There is no investment strategy
Classic funds usually do say how they diversify investment portfolios. Crypto funds should have something similar, otherwise this is a scam alert. At least they should state where do they invest for example; in ICOs, coins, cryptocurrencies with the growing trend and etc.
Crypto and classic investment funds – what is the difference and why crypto
There are a few differences between classic investment funds and crypto funds. First of all, the period of exit in crypto funds is usually less than in traditional funds. In a classic fund lock up period could be years, while in crypto funds it is commonly just a couple of months. Crypto funds can invest in more than 1000 projects, without any boundaries, all over the world, while classic venture capital firms (VCs) are usually limited within the country. Classic investment funds could invest in stocks and bonds of different international companies, but they are still subject to local regulation.
VCs and other classic funds, usually, raise capital over the years, searching for liquidity providers and other investors (however, sometimes they need less time). Crypto funds usually raising capital in 5-6 month.
Besides, crypto funds provide the ability to invest anonymously, and their profitability usually is much higher than any other classic fund could offer.
however, it should be noted that crypto funds have one major “con” against all “pros”. All of them are highly risky and there are many “scam” funds just collecting money and then disappearing, using the advantages of no clear regulation.
Are there any alternatives to crypto funds?
So, is there any other way to gain profit in a short term but without so many risks? Several projects in the crypto market are offering different solutions.
For instance, Blackmoon and Polymath are offering assets tokenization. The only difference is that while Polymath is focusing on tokenizing almost everything, from bonds to real estate, Blackmoon is specializing on tokenizing classic investment fund portfolios. Both platforms provide legal framework, compliance and token issuing.
At the same time, a service called tZero offering brokerage services, electronic private marketplace, digital brokerage, and Blockchain project development. Basically, tZero is a blockchain-focused subsidiary and a trading platform that supports equity tokens.
All those projects have already successfully passed their own token-sale and are successfully developing their products. All teams consist of well-known people in the industry, which have already made public appearances at several international conferences. So asset tokenization or trading on secondary markets within the well known platform might be the real alternative to “dark horse” crypto funds.
Investment in cryptocurrencies carries high degree of risk and volatility and is not suitable for every investor; therefore, you should not risk the capital you cannot afford to lose. Please consult an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Regional restrictions and suitability checks apply.