Bitcoin Funds - Is a Bitcoin Fund Investment Worthwhile in 2021?
It seems inevitable that two of the hottest areas of the investment world would meet sooner or later.
We have explained the key points about Bitcoin funds in this helpful guide. This article contains a detailed collection of all currently worthwhile Bitcoin funds. Including their advantages and disadvantages. But before we start, we would like to reveal that eToro offers the best Bitcoin fund and clearly wins our comparison. So if you want to save yourself time, it's best to go straight to our test winner!
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How do Bitcoin funds work?
For cryptocurrency enthusiasts and investors looking to benefit from the growing popularity of funds, the possibility of a fund tracking Bitcoin or cryptocurrencies is an exciting one.
However, there have also been growing problems when trying to create the first Bitcoin funds. This is because Bitcoin, the world's largest cryptocurrency by market capitalisation, remains largely unregulated. For example, the Securities and Exchange Commission (SEC) in the US has long been reluctant to allow a fund focused on the new and largely untested cryptocurrency market to go public.
Bitcoin funds therefore often play by slightly different rules than their old counterparts. Knowing how they differ and where they are similar is key for those looking to dive into this fascinating New World.
Before we look at the potential benefits and risks of a Bitcoin fund, let's take a step back and look at how a Bitcoin fund works and how it operates.
A crypto fund is an investment vehicle that tracks the performance of a specific asset or group of assets. Unlike a cryptocurrency index fund, an ETF or an exchange, a hedge fund is another way for an individual to invest in a large group of underlying securities. These are managed by teams of experts, occasionally rebalanced and endlessly analysed.
Investors receive profits from the market manoeuvres of these experts. Currently, there are two types of cryptocurrency hedge funds. Those that manage portfolios containing only cryptocurrency, and those that have added some cryptocurrency to a mix of other asset types.
Hedge funds use crypto funds to try to maximise returns by adding newly offered coins (ICOs) to the mix, for example to replicate the 82,000% return that the Ethereum ICO achieved. The latter are arguably more risk-averse, but less profitable given the cryptocurrency's outstanding rise.
Definition Bitcoin Fund
A Bitcoin fund contains only Bitcoin and mimics the price of the world's most popular digital currency. This allows investors to buy into the fund without having to go through the complicated process of trading Bitcoin themselves.
Investors can then buy into these funds to share in the profits as the value of Bitcoin rises. A Bitcoin fund focuses only on the price of Bitcoin and no other cryptocurrencies.
However, since holders of the fund are not directly invested in Bitcoin itself, they do not have to worry about the complex storage and security procedures required for cryptocurrency investors.
Definition Crypto Fund
The term "cryptocurrency fund" refers to a portfolio that contains a variety of different digital assets and is usually managed by one or a few individuals.
Again, investors can buy into these funds to share in the profits as the value of the fund increases. According to Crypto Fund Research, slightly more than half of these function as venture capital funds, while the rest are mostly hedge funds.
Venture capital funds are where different investors pool their money to buy into smaller companies with high growth potential. In the case of cryptocurrency funds, these companies are of course new projects and altcoins.
Hedge funds act as portfolios that are actively managed and minimise risk in the market, hence the name 'hedge'. They can be made up of any assets, but different assets are usually used in both long and short strategies to diversify the portfolio and make the fund resistant to high volatility or even profitable. Traditional funds are usually managed by small teams and are often only available to high-end investors. Minimum investments often range from tens of thousands to hundreds of thousands of dollars. Fortunately, this is not always the case with crypto funds.
So with a crypto fund you invest a collection of cryptocurrencies, whereas with a Bitcoin fund you only invest in Bitcoin.
Advantages and disadvantages of Bitcoin funds at a glance
If a Bitcoin fund simply reflects the price of the cryptocurrency itself, why should I bother with a middleman? Why not just invest directly in Bitcoin?
There are several reasons for this. Firstly, as stated above, investors do not have to deal with the security procedures involved in holding Bitcoin and other cryptocurrencies. Furthermore, there is no need to deal with cryptocurrency exchanges in the process. Investors can use the fund to invest in bitcoin and cryptocurrencies much more easily and through traditional means.
Another key advantage of focusing on a Bitcoin fund rather than Bitcoin itself is that experts look at Bitcoin price trends and are able to, for example, short Bitcoin in a bear market if they believe the price of Bitcoin will fall in the future. This is not possible in the traditional cryptocurrency market.
But of course there are also disadvantages of Bitcoin and crypto funds. Which ones exactly, let's take a look at as well.
Investing in crypto bundles instead of Bitcoin funds
As you have probably already noticed, the world of Bitcoin funds is sometimes confusing, complicated and you often need high minimum deposits to qualify for a Bitcoin fund.
However, as mentioned earlier in the text, there are other solutions than the classic fund. Providers have recognised the problem and offer so-called crypto bundles as a solution.
Crypto bundles are compilations of several cryptocurrencies and tokens that are offered by investment platforms, exchanges and start-ups. They are often not explicitly advertised as "funds".
This is because investing in a crypto bundle is not accompanied by the same claims as securities portfolios, which are heavily regulated by law. This does not release the providers from their liability. However, it does give them greater leeway in the design of their products. The composition is done by the provider itself or by external portfolio managers.
Crypto bundles are therefore a good way to benefit from the advantages of Bitcoin funds without having to invest a large sum.
In the following section, we therefore present the best crypto bundles that are also suitable for private investors.
eToro Copy Portfolio Crypto
The ingenious Copy Portfolio feature has made eToro famous, now this popular feature is also available for Bitcoin and cryptocurrencies!
Copy Portfolios are a form of trading that is very suitable for beginners or experienced traders looking for a passive form of trading. Copy Portfolios are free and managed by the eToro investment committee.
Meanwhile, eToro also offers two Copy Crypto Portfolios. The Copy Crypto Portfolios are perfect if you are looking for passive exposure to cryptocurrencies. The assets are fully managed by eToro with no fees.
eToro offers 2 crypto portfolios as mentioned earlier. The copy portfolios are called crypto portfolio and cryptocurrency.
Copy Portfolio: Crypto
CryptoPortfolio offers a diversified portfolio focused on cryptocurrencies with a market cap of over $1 billion and an average daily trading volume of over $20 million. The weight of each component within the CopyPortfolio is determined proportionally to the size of its market capitalisation with a minimum of 5%. The CryptoPortfolio is rebalanced on the first trading day of each calendar month in the eToro Investment Committee. The deletion of a currency from the CopyPortfolio will occur if any of the above conditions are no longer met.
Copy Portfolio: Cryptocurrency
The Copy Portfolio for cryptocurrencies offers a unique opportunity to investors seeking exposure to Bitcoin and Ethereum. The allocation of the Copy Portfolio is based on the market capitalisation of cryptocurrencies and is rebalanced at the beginning of each calendar month if deemed necessary by the Etoro Investment Committee.
Both Copy Crypto Portfolios offer the same advantages as a classic fund. We can therefore recommend this type of Bitcoin fund for every investor!
Crypto 10 Index Plus 500
Cryptocurrencies can also be bundled and traded as an index at Plus500.
Plus500 is one of the leading Forex and CFD providers and has introduced the new Crypto 10 Index.
Plus500 recognises the need for its investors to be able to analyse data quickly, particularly in light of the renewed interest and market volatility surrounding cryptocurrency trading.
The carefully crafted Crypto 10 Index represents only the world's largest and most traded 10 digital tokens and their performance. Cryptocurrencies are weighted by market capitalisation.
FreshWealth's platform provides access to cryptocurrencies with a user-friendly platform.
You are offered a simple, transparent and secure way to buy the world's most popular digital currencies in bundles with FreshWealth. FreshWealth allows investors to buy up to 20 different cryptocurrencies individually or in bundles.
There are currently three different bundles to choose from: Top 20, Top 10 and Top 5. The bundles contain the most popular cryptocurrencies, weighted by their market capitalisation.
Payment for the crypto bundles is also particularly easy at FreshWealth. Investors can pay for the bundles using credit cards, wire transfers or Automated Clearing House (ACH) banking transactions. Currently, you only need a minimum investment of 50 US dollars with FreshWealth.
Are Bitcoin funds possible for private investors?
The highly regulated banks have long put a stop to real crypto funds. There are many reasons for this.
The most important reason is undoubtedly the lack of tax regulations for Bitcoin & Co. It is not easy to determine profits and losses and pay taxes on them, even with a specially compiled portfolio. For example, many do not know that gains from cryptocurrencies held for more than one year are tax-free.
On the other hand, a Bitcoin fund of a bank contradicts the core idea of cryptocurrencies to detach themselves from central institutions. From the beginning, the idea behind Bitcoin was that owners manage their coins themselves.
In other countries, the situation was different. Countries like the US, the UK and Switzerland have been more involved with the regulation of cryptocurrencies and Bitcoin from the beginning. In these countries, the first Bitcoin funds for private investors have been around for quite some time. Too, there are now the first crypto funds.
Theoretically, however, every investor can also diversify his or her own risk, just as providers of equity funds do. Unfortunately, this autonomous approach without external help is very complicated, takes a lot of time and requires a lot of strategic planning. For this reason, there are now a lot of alternatives to the classic funds, but which offer similar advantages.
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Overview of the best Bitcoin funds
After the rapid fall of Bitcoin in 2018, many Bitcoin funds went bust. Meanwhile, only the best funds and platforms have survived and continue to offer their services. In fact, recent statistics show that many Bitcoin funds are actually yielding better returns than the Bitcoin Index.
Of course, it is essential to analyse the relevant candidates in more detail before investing in a Bitcoin fund. In this article, we present some of the best-known and most successful funds.
Bitcoin Fund Crypto 20
While CRYPTO20 is not a classic bank-regulated fund, but an autonomous tokenised crypto-only index fund, you are still offered many of the benefits of a classic Bitcoin fund.
It tracks the top 20 cryptocurrencies in the same way that the S & P 500 tracks the top 500 US stocks. Each token represents an investor's share of the underlying assets. The tokens are directly linked to the value of the underlying assets via the smart contract.
Crypto20 is therefore not a pure Bitcoin fund, but a fund, which brings together different cryptocurrencies to obtain a diverse and balanced cryptocurrency portfolio. If you look at it closely, Crypto20 is more of an index than a fund. Nevertheless, Crypto20 thereby achieves exactly what most funds aim to do. It offers you a diversified portfolio.
The fund is rebalanced weekly. This leaves enough time to buy or sell assets as the fund rules dictate, without paying a high premium over the best market price. It also offers a lower Crypto20 Cryptocurrencies SharesFund turnover rate, which in turn means lower exchange fees.
Each cryptocurrency normally has a maximum weighting of around 10%. However, this 10% can be exceeded for short periods of time. The upper limit is intended to prevent a single cryptocurrency from completely dominating the weighting and thus ensures a lower risk profile.
You can see an overview of the current weighting of the fund on the image.
Tobam is a Paris-based asset management firm founded in 2005 by Yves Choueifaty.
It has two minority shareholders: the California Public Employees Retirement System (CalPERS) since April 2011 and Amundi since May 2012.
Tobam recently launched an unregulated alternative investment fund. It describes the fund as the first fund of its kind in Europe. It allows qualified and institutional investors seeking exposure to cryptocurrency to benefit from Tobam's research and IT systems.
The Tobam Fund aims to allow qualified investors to invest in cryptocurrency in a more convenient and secure way.
Yves Choueifaty, president of Tobam, said, "Research is the cornerstone of Tobam, and we studied Bitcoin from a technical, financial, economic and regulatory perspective for a year before launching this fund."
The fund is available to eligible investors worldwide on a private placement basis.
Polychain Capital was one of the first companies to invest in cryptocurrencies and companies in the blockchain space, driving the adoption of cryptocurrencies globally.
The company offers one of the most successful cryptocurrency-based investment management services to mobilise investor funds for crypto companies. The company operates a hedge fund that works to deliver exceptional returns for investors through an actively managed portfolio of blockchain assets.
Polychain Capital has also started investing in various sectors, making it easier for startups - including crypto startups - to raise money for expansion and operations.
Interested investors can register for the fund via the Polychain Capital website.
Essentially, Iconomi is similar to a mutual fund company for stocks. Where the main difference is their focus on blockchain assets.
They offer different investment vehicles depending on a person's risk tolerance. The special thing about Iconomi's offer is that anyone can create their own fund. These funds can then be easily bought and sold.
Ethereum-powered smart contracts are used to manage investments on the platform, and almost all funds are stored in a multi-sig storage solution to protect them.
Since anyone can create their own fund using the Iconomi platform, there are now also the first providers offering their funds through the Iconomi platform. One of these providers is the CryptoPotato Crypto Fund.
The Crypto Funds is determined by the members, and allows the choice between more than 70 cryptocurrencies.
At the end of each quarter, the fund's structure is rebalanced taking into account the most chosen cryptocurrencies. For better performance, the structure is also reviewed by professional traders.
The advantages of Bitcoin funds at a glance
Providers have realised that blockchain technology offers many advantages and can make various processes more efficient and secure.
Funds allow for a relatively low-risk yet lucrative way to start trading crypto!
Of course, there are also disadvantages. Less control over one's own investment, the relatively high requirements for participation in many funds and of course that cryptocurrencies in particular often require a quick adaptability, which some funds lack.
In the end, however, the advantages clearly outweigh the disadvantages. In our opinion, funds are an integral part of the future of cryptocurrencies and bitcoins.
Conclusion: Investing in the crypto market with Bitcoin funds
Funds are a very simple way to diversify your portfolio and thus reduce your own risk.
The fact that funds are slowly reaching the crypto world was foreseeable. Unfortunately, there were problems with regulations for a long time. But the fact that there are now more and more Bitcoin funds in Europe, both from the state and the private sector, clearly shows the great potential of this sector.
Our recommendation: Buy cryptos with eToro
Buy and sell cryptocurrencies directly in the wallet
Paypal, credit card and instant bank transfer
Real cryptos or CFD trades
A Bitcoin fund is an investment vehicle that tracks the performance of a specific asset or group of assets. Unlike a cryptocurrency index fund, an ETF or an exchange, a hedge fund is another way for an individual to invest in a large group of underlying securities. These are managed by teams of experts, occasionally rebalanced and endlessly analysed.
That depends on the fund. Some funds require high investment sums of more than 50,000 euros, whereas other funds allow investments from as little as 50 euros.
Yes, unfortunately it took a long time until the first Bitcoin funds were established, which is due to the strict regulations by BaFin. Unfortunately, most fund operators still require high minimum investments. Nevertheless, there are also Bitcoin and crypto funds.
In our opinion, yes. Bitcoin and crypto funds offer the opportunity to invest in the normally highly volatile cryptocurrencies even as an inexperienced investor with little time.
The best Bitcoin fund comes from eToro. Admittedly, it is not a classic fund, but a Copy Portfolio. However, the Copy Portfolio offers almost exactly the same advantages as a fund!