In finance to become your own boss and manage your own fund in the peak. If managed correctly in a profitable, stable and compliant manner then it can be extremely lucrative for investors as well as yourself. Whether or not you’re an experienced financial advisor, it may be advantageous to branch out of the “typical capital markets” and add your investors to crypto markets. Nowadays it seems its very much at the request of the client.
To start a crypto hedge fund, the due process isn’t massively different yet due to reduced regulation as it stands, you really don’t need to create and register a fund. It all starts an investment group to be the fund’s general partner and guide the decisions of others to trade. The investors will act as limited partners in a private partnership.
1. Learn and understand the basics of cryptocurrency and hedge funds
A hedge fund is collection of numerous investors’ money with the aim of, via using a large range of different strategies, generating year on year returns for investors. There are many types of trading (day, swing, position) and much technical analysis to understand. Crypto hedge funds are not dissimilar. Typically, the “buy and hold” strategy has been popular since the boom with the much-needed understanding of managing risk. Understand the need to manage risk in relation to the market using books, podcasts, courses (online or office) and via experience. A mentor and continuous learning of evolving strategies, market conditions and compliance to regulations to enable the best use of investors’ funds.
2. Define a strategy
The way funds usually start and grown is either the owner brings over their biggest or most loyal client (knowing their track record) or they have a long, consistent and reliable set of year on year returns in a previous role. Even with this in mind, with the requisite experience and necessary backing and resources, you will also need an overall vision for your fund, including an idea of how it will generate returns for investors, what’s going to be the next hot ICO or growth coin and how the asset is going to be invested in to and managed.
3. Create a name and hopefully a brand
The name needs to reflect quality, trust, reliability and credibility, especially within cryptocurrency. The name will slowly become known and memorable as it becomes prominent in the right circles. Most have an XYZ “capital” or “investments” to ensure the investors know they are a finance company.
4. Open an account with a trusted and verified platform
Coinbase is one of the easiest ways to buy Bitcoin, Litecoin and Ethereum and is increasing its listing all the time. After creating an account on the Coinbase website, users can purchase these cryptocurrencies with their credit card or bank account (in fiat) as well as Bitcoin or Ethereum. Generally, to manage risk you would want and likely need to spread client funds across several exchanges in case of hacks. One of the key differentiators and anxieties to the normal hedge fund world. Coinbase has the largest growing network of users, the most sophisticated infrastructure and security systems too.
5. Open up different exchange accounts
So important, we have to mention it twice. Spread your risk across several platforms. One of our personal favourites is Binance; a cryptocurrency exchange with a focus on the Chinese market and other Chinese coins. Currently, it supports English and Chinese users but has really branched out to hoover up other cultures and demographics with language.
Bittrex is one of the larger crypto to crypto exchanges offering a large number of trading pairs into bitcoin – including all the major cryptos such as darkcoin, nextcoin and litecoin. Again, their growth in coin offerings and security is admirable.
For an unbiased look at what we think are respectable platforms, read our article on the best cryptocurrency trading platforms.
6. Setup different fund types
For example, if you are a fan of Tron you would explore the gaming and entertainment market or vice versa. The fundamentals of the coin you are analysing need to sync and align with the macroeconomic market for the future and the users of your fund.
7. Start to analyse and invest
Don’t get analysis paralysis – do your research, verify and quality your reasoning and make the investment. This is obviously with all the necessary legals, disclaimers and investor approval in place. It goes without saying a solid legal and compliance team to KYC and protect the company and fund is a given.
8. Take and enjoy profits (if there are some)
If it’s a success and you’ve traded on our advice then you should have profits to hand out and reward investors. Again, a solid accountant to do all the necessary accounting is a must and ensure the right amount of tax is declared (or avoided) in the jurisdiction you are in.