Cryptocurrency hedge funds have been a hot topic in the financial world over the past few years. They allow investors to diversify their holdings from Bitcoin Wallet and potentially earn big returns, but they also carry a certain amount of risk. In this article, we’ll explore the collapse of one popular crypto hedge fund, its role in dragging down many investors with it, and what’s next for these players in this ever-changing industry.
A crypto hedge fund is a fund that trades cryptocurrencies.
The fund’s manager, an individual or company, invests investor money into various cryptocurrencies and other blockchain-based assets. The manager then provides investors with quarterly reports on their holdings and performance.
Investors generally invest in such funds to diversify their portfolios and hedge against the risk of losing money in one market or industry, for example, stocks. However, over the past year or so, many have become concerned about these investments’ viability due to increased volatility in cryptocurrency markets combined with regulatory uncertainty about how governments around the world will treat cryptocurrencies.
What happened to Alpha Protocol?
Alpha Protocol was a cryptocurrency hedge fund established in 2018 by a group of friends and run out of Chicago. The fund invested in blockchain-based projects and cryptocurrencies, intending to make money for its investors. It is believed that Alpha Protocol raised over $1 billion from investors during its short lifespan.
When the Alpha Protocol collapsed, it caused many people to lose their money. Not just those who had invested directly with the fund but also those who had invested through other funds which invested in Alpha Protocol. This means that many investors learned very quickly how vulnerable they were to this type of investment vehicle when things went wrong.
The fund invested in just one asset class cryptocurrency. This means that its entire portfolio consisted of just this one class, which is a very risky way to invest your money. It’s also why you shouldn’t put all your eggs into one basket. As the saying goes, don’t put all your eggs in one basket.
If you’re going to invest in crypto, you should diversify across multiple cryptocurrencies and other types of assets like stocks and bonds. Diversification is the only way to hedge risk so that if things go south for any particular asset class, your overall portfolio doesn’t tank as much as it otherwise would have been able to do without diversification.
Why didn’t the fund short Bitcoin?
If you’re wondering why a fund invested in cryptocurrencies would fail to simply short Bitcoin, there are no laws against shorting crypto. Short selling is a practice by which investors can make money if the price of something goes down.
As for cryptocurrencies, there are no regulations specifically prohibiting hedge funds from shorting cryptos. At the same time, some institutions have expressed concerns about allowing traders to bet on falling prices, which could destabilise markets. There are other ways for investors to profit from falling cryptocurrency prices without actually betting against them directly.
What’s next for Alpha Protocol?
The good news for those who invested in Alpha Protocol is that you should get your money back. The bad news is that it might not happen until March 31st, 2020. And the other bad news is that if you want your money sooner than that, there’s nothing we can do about it.
A crypto hedge fund is an investment vehicle that allows you to invest cash in the form of cryptocurrencies or digital coins. Crypto funds are not regulated and insured like traditional investment vehicles. In addition, there’s no third-party audit of their holdings, so it can be difficult to determine their worth at any given time.
They carry risk because they don’t have a regulatory framework to protect investors; no federal or state laws require them to register as investment advisors or broker-dealers with the Securities and Exchange Commission (SEC).
Final Words
There are many risks to investing in cryptocurrency, but the biggest one is that you could lose all your money. The only way to avoid this is by diversifying your holdings across different platforms and projects. To avoid risk, you should use bitcoin trading software. While some high-profile failures like Alpha Protocol have occurred, most crypto hedge funds are doing just fine.