The market discovered a new type of asset 11 years ago – digital assets and the market's interest and demand for them has only grown year after year. Bitcoin, the first blockchain-based cryptocurrency with explosive growth and revolutionary potential, is one of the most well-known. As a result, a growing number of people want to invest in it with confidence. Previously, the only way to obtain digital assets was to mine them; however, clients can now invest directly. Another way to support investments in cryptocurrencies and other digital assets is to establish a crypto fund.
Cryptocurrencies' popularity grows year after year, but so do the numerous risks that investors face when investing in them. The following are some of the most common issues that cryptocurrency investors may face, as well as an explanation of the rise of cryptocurrency funds as a means of investing in digital assets.
What is a cryptocurrency?
Cryptocurrency is one of the blockchain-based digital payment methods. The difference between cryptocurrency and traditional money is that cryptocurrency is not issued by the government or any other financial institution – there is no centralized authority.
Blockchain technology is a decentralized system that allows for secure online payments, which are represented by virtual «tokens». It is also a system for controlling and recording operations.
The Advantages of a Cryptocurrency Fund
A cryptocurrency fund is a collection of manageable digital currencies. It connects depositors and virtual currency traders, allowing them to profit.
Cryptocurrency funds come in a variety of forms.
- Cryptocurrency Hedge Fund – Investors use cryptocurrency hedge funds to increase their short-term profits. These funds are invested in existing virtual currencies as well as new cryptocurrency and Blockchain technology projects.
- Cryptocurrency investment fund – allows large investors to leverage their capital, tokenize assets, and launch projects using cryptocurrency. This is a high-risk fund that allows you to make a lot of money.
- Cryptocurrency mutual fund – appropriate for inexperienced investors. Contributors receive a token issued by the fund in exchange for their investment (the so-called share).
- ETFs, or exchange-traded funds, are passive investments that control the price of an asset. This is a long-term strategy for increasing profits gradually.
Investors interested in entering the cryptocurrency market should investigate Investment and Mutual Cryptocurrency Funds. To mitigate certain investment risks and obtain an investment vehicle with low barriers to entry, a client can purchase shares in a fund that invests in digital assets or tracks the digital market.
Cryptocurrency hedge funds invest in specific assets and have more stringent entry requirements – new investors have less leeway in their investment requirements.
The following are the primary benefits of establishing a crypto fund:
- Different types of funding are available.
- The cost of establishing a crypto fund is less than that of establishing a traditional fund.
- The minimum amount of investment in a cryptocurrency fund is determined by the investor.
- Possibility of making a lot of money.
The UK, Switzerland, Liechtenstein, Malta, the Cayman Islands, Georgia, and Lithuania are the most popular and cryptocurrency-friendly jurisdictions in Europe for registering a crypto fund.
The United Kingdom is a promising and reputable jurisdiction for cryptocurrency investors. The adaptability of the organizational and legal form of crypto funds in the UK is provided by legislation. The fund's income from crypto asset transactions may be exempt from corporate taxation in some cases. The government is doing everything it can to create and implement legislative regulations for the regulation of cryptocurrencies in the United Kingdom.
Switzerland is a popular place to set up a crypto fund. Crypto funds in Switzerland are primarily intended for professional investors interested in investing in cryptocurrencies that use Blockchain or DLT technology. The Financial Markets Supervisory Authority (FINMA) applies existing financial market laws directly to crypto funds, which means the rules are the same if the risks are the same. The regulator must, however, ensure that new technologies are not used to circumvent existing rules.
Investment managers of crypto-currency funds in Switzerland must strictly adhere to legal requirements: you can only invest in established crypto-assets, and you can only invest through platforms hosted in a FATF Group member country. FINMA is required to follow these rules in order to reduce the risks associated with crypto assets.
Liechtenstein – As one of the best financial technology centers in the region, it has one of the most advanced financial technology industries in Europe. Those wishing to establish a hedge fund in Liechtenstein, regardless of cryptocurrency business model, will have the Financial Market Authority's (FMA) full support, as the regulator is directly involved in assisting investors.
Malta is a safe bet to be called the financial technology capital of the world. The government of Malta supports the introduction of blockchain technology innovations and the development of investment crypto funds.
Cryptocurrency Investment Funds in Malta are a regulated and adaptable vehicle for those looking to establish Collective Investment Schemes (CIS). The current legislation permits the creation of virtual currency funds. In Malta, the primary regulatory framework for cryptocurrency funds is the Investment Services Act (ISA). Any foundation that wishes to conduct business in Malta must first obtain a license from the MFSA. This document is issued only if the fund fully meets all of the criteria and requirements related to the fund's purpose and work.
Cayman – one of the reasons for the islands' popularity among investors is the flexibility of fund structures. The most common cryptocurrency or blockchain fund structures are as follows:
- Public corporations are exempt from paying taxes in Cayman. The company must be registered with the Cayman Financial Authority (CIMA), and the fund's board must include at least two CIMA-registered directors. This type of company is typical of cryptocurrency trading strategy managers - investors can redeem their investments at their leisure.
- A tax-exempt private limited partnership in the Cayman Islands. Managers who intend to make long-term investments in startups or Blockchain projects prefer this structure. Unless the manager grants permission, investors are unable to redeem their investments. CIMA registration is also required for this type of fund.
Georgia is one of the world's leading cryptocurrency countries, with no legal restrictions on cryptocurrency exchange. Investors in Georgia are very interested in establishing crypto funds because operating in a free industrial zone is a financially profitable solution.
Lithuania – In 2019, the country's Central Bank published a document that altered the fundamental principles for establishing investment funds. Crypto funds in Lithuania can now accept cryptocurrency payments processed by a third-party system that converts amounts into local currency. When conducting transactions, risk-reducing tools such as customer identification, a set number of virtual asset movements within the enterprise, and coverage of traditional assets should be used.
In Australia, a crypto fund is being established
Now is the time for those who want to establish a crypto fund in this country. ASIC has adopted a document that specifies all the criteria and principles that support cryptocurrencies and protect crypto asset storage. New funds can be created based on these criteria. This action clarifies the regulatory framework for cryptocurrency ETFs in some other states.
In the United States, a cryptocurrency fund has been established.
This is a state that is on the cutting edge of establishing a cryptocurrency fund. Both New York, the «world capital» of hedge funds, and San Francisco, which has a developed venture capital industry, are appealing to founders of digital assets.
California, specifically San Francisco and Silicon Valley, is home to half of all US crypto funds. Cryptocurrency funds in the United States must be registered with the Financial Crimes Enforcement Administration (FinCEN). They must also adhere to AML/CTF guidelines. Those looking to set up a cryptocurrency fund in the United States should be aware that cryptocurrency laws vary by state.
The establishment of a crypto fund in the UAE
To popularize cryptocurrency among investors, the UAE launched the Blockchain Strategy, which mandates that 50 percent of government financial transactions be conducted using blockchain technology, including cryptocurrencies. Dubai is the most popular among investors for registering a cryptocurrency fund in the UAE. The placement of a bitcoin fund on Nasdaq Dubai by a Canadian digital asset manager demonstrates the state's commitment to the development of this industry.
The decentralized nature of blockchain technology and cryptocurrencies attracts investors from all over the world. The most important consideration for investment managers looking to launch a cryptocurrency fund is the regulatory impact on the fund in the jurisdiction of choice. As a result, managers must ensure that their investors – both themselves and their fund – adhere to all applicable legal regulations.