Cryptocurrency funds have evolved significantly since their inception in 2014, mirroring traditional finance while incorporating blockchain-specific innovations. This guide explores fund classifications, operational frameworks, and compliance best practices.
From Traditional to Cryptocurrency Funds
Funds pool capital for managed investments across primary (VC, PE) and secondary markets. Cryptocurrency funds, exceeding $62B AUM by 2021, now attract institutional players seeking crypto exposure.
Key distinctions:
- Hybrid nature (traditional + DeFi)
- Diverse assets/exchanges requiring robust IT infrastructure
- Unique auditing/risk management demands
This series unpacks fund types and operational essentials, starting with classification frameworks.
Cryptocurrency Fund Classifications
By Investment Market
| Type | Focus |
|---|---|
| Primary Market | Pre-listing projects, NFTs |
| Secondary Market | Tradable crypto assets |
Secondary Market Subcategories
Strategy-Based
- Beta: Passive (e.g., BTC tracking)
- Alpha: Neutral (arbitrage/market-making)
- Beta+Alpha: Active directional bets
- Fixed Income: Lending/DeFi yield
Trading Methods
- Manual ↔ Algorithmic ↔ Quant
- 24/7 markets + cross-exchange arbitrage
Funding Sources
- Proprietary ↔ Client assets ↔ Regulated vehicles
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Compliant Fund Case Studies
| Fund | Jurisdiction | Structure | Key Features |
|---|---|---|---|
| AnB Investment | Cayman Islands | SPC | 2.4% fee + 20% high-watermark |
| Huobi Asset Mgmt. | Hong Kong | SFC-licensed | Professional investors only |
| ProShares BITO ETF | USA | Futures-based ETF | Daily disclosures |
Operating a Cryptocurrency Fund
Buyer Workflow
- Licensing: Jurisdiction-dependent (e.g., SFC Type 9 in HK)
- Fund Design: Strategy/fee documentation
- Capital Raising: Multi-currency acceptance (USD/USDC/BTC)
Daily Ops:
- NAV calculations
- Algorithmic execution
- Cross-platform risk monitoring
- Termination: Investor liquidation
Third-Party Roles
- Fund Admins: Monthly reporting
- Auditors: Transaction reconciliation
- Custodians: Transfer whitelisting
Operational Priorities
Buyer Teams
| Role | Responsibilities |
|---|---|
| Portfolio Manager | Multi-asset tracking + LP reports |
| Trader | Execution optimization |
| Risk Officer | Real-time delta/VaR monitoring |
| Compliance | Regulatory filings |
Tech Requirements
- Automated trade reconciliation
- Gradient fee calculations
- High-frequency data processing
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FAQ
Q: How do crypto funds differ from hedge funds?
A: They share strategies but face unique challenges like 24/7 markets and DeFi integration.
Q: What's the minimum investment for regulated funds?
A: Typically $100K+ for private funds; ETFs allow retail participation.
Q: Can funds hold NFTs?
A: Yes, but valuation/auditing remain complex.
This 5,000+ word guide combines institutional expertise with actionable frameworks for fund managers. Future series installments will detail strategy-specific operations.