Derivatives and other products that use cryptocurrencies must qualify as “financial instruments.” In June 2023, the European Commission’s Markets in Crypto-Assets (MiCA) regulation went into effect. Although the underlying cryptography and blockchain are generally secure, the technical complexity of using and storing crypto assets can be a significant hazard to new users. Are Cryptocurrencies Safe Investments? Cryptocurrencies have attracted a reputation as unstable investments due to high investor losses due to scams, hacks, bugs, and volatility. User risk: Unlike traditional finance, there is no way to reverse or cancel a cryptocurrency transaction after it has already been sent. This law sets safeguards and establishes rules for companies or vendors providing financial services using cryptocurrencies.
I Didn’t know that!: Top 7 Crypto Currency of the decade
Multi-strategy: These funds, per the name, employ multiple strategies to generate alpha for high net-worth investors and others. Global macro: Also termed Managed Futures or Systematic funds, the idea here is to trade future and forward contracts – liquid only – based on trends. DeFi-based fund management. Their focus is primarily on using funds to generate yields through liquidity provisioning, staking, or other strategies. Yield-focused funds: Some funds only focus on DEX. Market-neutral funds: These are risk-mitigating funds where the focus is on profiting from relative price action. Fund of funds: There are some funds that invest in other crypto hedge funds, especially as a method to diversify risks.
Post-FTX, the drop in the performance of hedge funds has been sharp, regardless of the fund strategy or fund type. Crypto hedge funds have been around since 2013. However, only in 2015 did we get a clear view of the strategies and types. Another novel take on the current state of crypto hedge funds is how they are spread out geographically. Also, while the Asian and European fund setups and managers prefer active strategies like trading and arbitrage, the U.S. Here is how the active hedge fund space evolved over the years, with the focus shifting from liquidity provisioning to trading. For instance, the U.S. Fundamental strategies, Fund of Funds, and other passive options.
With fewer regulations in place, hedge funds are better poised for alpha generation – generating higher returns. Is there a crypto hedge fund? In short, yes! With the financial landscape evolving and investors showing interest in diverse asset classes, crypto hedge funds are becoming increasingly common. And with risk management, we mean strategies to hedge the risks. But are traditional hedge funds as relevant as they once used to be? In TradFi (traditional finance) a hedge fund aims to help investors maximize returns with a proper risk management strategy in place. Marcel Kalinovic, the CEO (https://www.pipihosa.com/2023/11/09/bitcoin-tops-37k-for-first-time-since-may-2022-as-short-squeeze-bumps-prices-amid-btc-etf-optimism/) of Lit XChange, thinks not.
A fund manager needs to be very careful in this regard. It wouldn’t be wrong to term capital allocation a type of science that requires experience. We cover this important aspect of hedge fund management in more detail later in this discussion. Outperform even some of the most rewarding TradFi hedge funds. A crypto hedge fund is aimed to generate alpha. The concept of alpha generation relative to a hedge fund is all about beating the average performance of the index, asset, or fund it is measured against. In regards to an investment instrument, alpha signifies the performance. Allocating too much to a highly volatile cryptocurrency might comprise the fund’s structure and stability.