• Saad Atique

Digital asset Investment funds

Updated: Sep 8, 2021

In the last few years, the trend of investing in "Digital Assets" has become immensely popular worldwide, and many are promoting this as 'the next big thing'.

According to various reports and finance experts, digital asset investment funds can generate high returns in no time, much more than any other investment mode.

But as the investment medium is relatively new, so it is vital to understand all "ifs and buts" about the digital asset investment funds.

A phone displaying 'cryptocurrency' next to a series of tables and other information regarding investing
Digital Asset Investment Funds

What are digital assets?

Digital assets, by definition, are anything that has a presence in a digital format and comes with usage rights. Data without the usage rights are not classified as assets. In other words, a digital asset is content that you can store digitally. This includes images, photos, videos, excel sheets, and files containing text.

So, how is Bitcoin a digital asset?

Bitcoin and several other cryptographically-secured digital assets are different from fiat currencies because you cannot directly alter the numbers that are in circulation.

It further projects the virtues of an asset in that it has a value and is transferable between owners. Hence they are much closer to assets or commodities. Obviously, by their very nature, bitcoin and other cryptocurrencies are digital - they are non-tangible (don't physically exist).

Why are Digital Asset Investment Funds so popular?

In early 2020 US stock market suffered the largest single-week decline since 2008 due to the global COVID-19 pandemic. It means no asset is invulnerable to loss, and things can change anytime.

But luckily, nowadays, options are not limited, and you have plenty of alternative asset choices to invest in.

The biggest reason people are investing in digital assets is the low uncertainty factor compared to traditional assets.

From market instability and unemployment rates to the COVID-19 pandemic, anything can hurt your investments, and you have very little control over your investments.

With digital asset investments funds, the underlying cryptocurrencies and tokens are influenced primarily by supply and demand. There are secondary and tertiary influences too,

However, you need to diversify your portfolio and try to keep it well-balanced. We will show you how to in the next section.

How to diversify your Digital Assets

If you want to invest in digital assets/cryptocurrencies, you need to think about minimizing your risk while maintaining high returns.

In this case, diversification of your digital assets is the best way, and here are some tips for you.

Research which Digital Assets to invest in

First of all, you need to get to know about the market and keep abreast of issues and developments concerning national and international risks such as regulatory pressure, legality within jurisdiction, compliance of digital assets and the differing definitions of types of digital assets from jurisdiction to jurisdiction, completeness of the project behind the digital assets you’re considering, the different blockchain and interoperability with your wallet, cost of transactions, the ability of teams behind projects related to digital assets, ability of underlying blockchain to process transactions, which exchange you should (or may have to) use to complete your purchases.

Furthermore, you need to consider the timing of you investment in comparison to the development of a project and whether milestones will be met on time and to the prescribed functionality.

There aren’t many up-to-date sources of how best to research digital assets and their underlying projects. A keen eye and an open mind is needed to decipher the true information from a project’s press releases and a further consideration needs to be kept for the source of reports in the digital asset industry as many media sites are owned or influenced by venture capitalists or investors who essentially ‘talk their own book’.

Being able to read between the lines when consuming information about digital assets is a steep learning curve. It can take many months, even years, to get the clarity needed to spot big news between the rampant self promotion that happens in the industry.

Once you have created an investment thesis and researched the digital assets that seem appropriate for your strategy, you need to make sure you’re not betting the farm in just one market segment. It’s best to diversify.

Invest in Digital Assets in different sectors

Diversification is the foundation of any successful portfolio. But how do you diversify in digital assets? Well, given that nearly all digital assets trade against bitcoin, it is difficult to diversify against the risk of bitcoin led market influence, but you can still diversify between segments in the crypto market to avoid holding all your eggs in one basket.

You could consider these market segments when looking to structure your digital asset portfolio:

  • Platforms: essentially the blockchains that decentralised apps (dApps) run on, these tend to include technologies such as smart contracts so that dApps can function. Examples include Ethereum, Cardano, Tezos, Holochain, Solana, Algorand.

  • Cryptocurrencies: these are digital assets which have the primary aim of becoming a means of exchange, much the same as the main function of fiat currencies. Examples include bitcoin, litecoin, bitcoin cash, bitcoin SV.

  • Privacy coins: pretty self explanatory, privacy coins are like cryptocurrencies but with the added factor of privacy for users. There is a massive grey area surrounding these since the introduction of the ‘Travel rule’ in the 5th Anti Money Laundering Directive. Examples include dash, Monero.

  • Exchange coins: these are coins linked to exchanges and can be used to lower exchange fees for traders. Such examples include Binance coin, huobi token.

  • DeFi tokens: these tokens are linked to decentralised finance projects and usually carry a yield of staked on the associated platform. Examples include Uniswap, PancakeSwap, Aave, Compound.

  • Interoperability tokens: these are tokens associated with interoperability platforms (ones which allow you to move digital value between blockchains). Examples include polkadot, cosmos, wanchain.

  • Oracle tokens: these tokens are associated with projects that provide oracle services to blockchains so that information for smart contracts is correct, time stamped and auditable. Examples include band protocol, chainlink.

There are other market segments in the digital asset market and this non-exhaustive list is merely to give an example of how you could choose to diversify you portfolio if you so wish.

Alternatively, you could invest in a digital asset fund and have somebody do the research and diversification for you.

We run a digital asset fund that focuses on the infrastructure that Decentralised Finance (or DeFI) is built on.

Cryptocurrency funds like ours are, as you are no doubt aware, funds that focus on digital assets. They are ran by committed fund managers who analyse the market continuously and make sure that you see great returns over the mid-to-long term.

These usually have ‘minimum investment criterion’ and are normally only open to high net worth individuals, professional investors or institutions and thus are usually out of the reach of your average investor.

A relatively new concept that has emerged recently is strategy copying. This is where a fund manager manages assets on an online platform and you are allowed to copy the investments that they make in real time.

The first time we saw this idea unveiled to a great success was with eToro a few years back, which allowed people to copy strategy managers on their stock and commodity purchases.

More recently, a company called Iconomi has launched a version solely aimed at the digital assets market.

As a crypto fund manager myself, strategy copying platforms like those listed above help to democratise investing. Whereas my fund could only accept investors looking to commit at least €1,000,000, with Iconomi platform, you can essentially invest in my fund from €10 upwards.

To find out more about Iconomi and our DeFi Infrastructure Fund strategy, click here.

Final Thoughts:

Everyone willing to take some risk in their overall investment portfolio would be well placed to include our digital asset investment fund as it is uncorrelated to traditional assets and the rewards substantially outstrip the added risk.

Plus, you can effortlessly generate good alpha returns as an investor. Similarly, you can also hire a reputable management firm to deal with the matters.

However, keep in mind “high returns are associated with high risks, always.” So, be careful and play safe.

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