How Cryptocurrency Mutual Funds Work: Investment Risks and Savings
Mutual Funds are an important player in the financial world. They allow investors that have money, but lack experience and knowledge, to benefit from various asset classes. Mutual Funds are managed by professionals and have a diversified portfolio that allows them to minimize risks. The portfolio would usually include stocks and bonds.
Crypto Mutual Funds are simply Mutual Funds that deal in cryptocurrencies, as opposed to stocks or bonds. The aim of these new entrants into the financial market is to make investing in cryptocurrency as easy for newcomers as possible. The Mutual Fund will do all the trading, and the investor will put in the money and have access to an asset they might not understand.
Experts Avoid Confusion, Panic and other Pitfalls
Mutual Funds that deal with cryptocurrency are a new phenomenon, but not a surprising one. All investments require knowledge that many people do not have. However, where stocks are instinctively understood (own a part of a business), cryptocurrency is something many people do not understand in the same way.
Handing over the control of managing an asset to an expert is the best possible solution. That way, the advice is acted on immediately, with no time delay. Investors also have more free time, not needing to cover every little thing that happens in the industry. The experienced fund manager, with his team, take care of all that hard work and tough decision making on behalf of the investor.
This helps avoid the confusion that new investors feel when dipping their toes into the market. Anyone who is new to cryptocurrencies will invariably be confused for a good, long while as they learn the ropes. Having a fund manager eliminates this confusion on the part of a new entrant into the field.
The more money that goes into mutual funds will be better for the market overall. The confusion that is inherent in cryptocurrency can lead to panicky investors. These investors skew the market to greater boom/bust cycles than if seasoned traders managed the same amount of money.
That is the last point of having Mutual Funds. The amount of money is far greater, the risk is diversified and the market influence is far greater when people pool their money. A fund manager will, therefore, be better and have more money. Should Crypto Mutual Funds prove to be as popular as the normal variety, a lot more money and stability could be injected into the otherwise volatile market.
While money is not something that cryptocurrency markets lack, the stability offered by having less average Joes trading individually is something that can not be overstated.
Risks of Mutual Funds Stay the Same
That's not to say everything is positive. There are, as always with investing, risks that come with Mutual Funds.
The first is handing over your money to someone else to use. This will not be a block for people who are used to putting money into a fund. The problem is for current investors, who are mainly individuals that have been through good and bad times, not wanting to get out of the market. There are various mental blocks to this. They might be afraid of getting out too early. They might be adamant they can return any losses themselves. They might think that any fees paid will outweigh gains. Regardless, the result is the same. Fear of handing money they have worked with over to someone else.
Volatility is also a risk, though since these are funds in cryptocurrency, it would be no different from trading alone. Cryptocurrency is notoriously volatile, so if you are choosing a Crypto Mutual Fund then you should already know this. Investors looking or safer, more stable assets can look at other Mutual Funds.
The last risk is not a risk at all. It is, however, a stumbling block with many people. Particularly people who are used to doing things themselves. It is the fees that Mutual Funds charge.
New Entrants Abound
One such Mutual Fund has recently been opened in Canada. First Block Capital is a crypto and blockchain investment company that is licensed by the BCSC. The fund is available on the NEO Connect distributed platform. The founders pride themselves on being the first Bitcoin product to be approved by the BCSC. It is notable that the fund can be traded as easily as many ETF (Exchange-Traded Funds) which is a big step to crypto legitimacy.