The crypto world has come a long way since Bitcoin was introduced as the first cryptocurrency in 2009. Those who mined and invested early in this digital coin came to reap hugely after some years. However, it was not until 2017 that many people came to know about cryptocurrencies. The ICO wave of 2017 saw some investors gain a lot when the crypto prices surged by more than 1,500%. However, some people suffered massive losses as they invested in dubious projects.
The announcement of various entities such as NASDAQ, CBOE, and CME that they would list futures contracts in Bitcoin was a big boost to the crypto fame. Various players started to explore several ways of investing in and funding digital assets and blockchain products. A cryptocurrency fund is one of the best funding tools that people are exploring in this digital era.
What is a cryptocurrency fund?
It is a portfolio that contains a variety of different digital assets and can be managed either by an individual or a group. A cryptocurrency fund can serve different needs, such as seed funding, for business growth, product & technology development, to maximize impact, develop networks and platforms. Such a fund attracts investors that will buy into the investment and share in the profits as the value of the fund grows. Most cryptocurrency funds split their funds into various investment vehicles, such as venture capital funds and hedge funds, according to data prepared by Crypto Fund Research.
Venture capital funds bring investors who pool their funds together to buy into small startups and businesses with high growth potential. Such businesses can be altcoins or new projects in blockchain and cryptocurrency space. The altcoin will then be sold after it has grown by a sufficient amount where the investors will benefit from the profits.
Hedge funds are mainly portfolios that aim at minimizing the risks in the market. A hedge fund in a cryptocurrency fund will be made up of digital assets that can be used for both short and long term strategies.
Steps to apply a cryptocurrency fund
Prepare your project
The crypto and blockchain areas are still in their infancy stages, and people always skeptical about investing in new projects. However, people can now tell that blockchain is more than Bitcoin. You need to make people trust you before they can invest in your project. Your managers should provide as much information as they can to gain the trust of potential investors. You need to share information such as who you are, what you do, how you manage investments, and if you have any track record in both investment and crypto world. Many firms partner with reputable companies to boost their credibility and make potential investors trust them.
You must also layout out the nature of assets that you deal with. For instance, you can decide to deal with digital assets and cryptocurrencies alone. On the other hand, some firms will have a mix of digital assets as well as traditional investment vehicles.
Check for eligibility criteria
There are some terms that you must meet to apply for such funds. The requirements will vary from one crypto fund to the next. You must either be a qualified investor or a registered company to invest in such a fund. The definition of a qualified investor will depend on your country or economic block. Companies from some countries or regions may be excluded from benefiting from such funds due to taxation barriers or even lack of sound financial systems.
Most of the funds will require you to have a working prototype. There should also be an indication of amazing solutions from the initial tests conducted on this prototype. The proposed solutions must be or willing to get licensed. Such an approach ensures that the crypto fund only funds those projects that meet certain international codes. The underlying product(s) also needs to be tailor-made to provide solutions in a particular area of interest.
Go through the Expressions of Interest document
Most funds will provide this document to guide potential firms/ individuals through the application process. Ensure that you go through the FAQ section as it covers some of the basic questions and answers to guide you through the process.
You will get more insights about the nature of products that qualify for the funds through this document. You will also understand how the fund scores applications. The scores will determine if your project qualifies for funding and how much money it will receive. You can always seek more information by reaching out to the managers of the fund through email.
Submit your application
After going through all the guidelines, you are now ready to make an application if you meet the minimum qualifications. The submission process will depend on the company managing the fund. However, most of them will provide a form where you will fill in data that will help process the application. Some may even require you to upload a short supporting video that pitches your idea. Fill in all the relevant information, cross-check, and then click the submit button.
Why use cryptocurrency funds and not ICOs?
Initial coins offerings were quite famous in 2017 and early 2018. Some projects like Ethereum were funded through ICOs. However, there were a lot of scams that came with ICOs, and that is why they were banned in some countries.
A crypto fund takes a different approach from ICOs, as you must prove that your project has potential. Such funds are managed by professionals who understand the crypto and blockchain worlds well. Some of these funds will even advise on how to use these funds, which minimizes the risks of running a project that will fail.
Deciding whether to invest in small-cap forex or crypto stocks has always been a challenge to many people. The good news is that the market value for cryptocurrency funds continues to rise as cryptocurrencies and blockchain go mainstream. A report prepared by PWC shows that it grew from $1billion in 2018 to $2billion in 2019, which is a clear indication that the market has lots of potentials.