Investment Vehicles (Crypto-tied)

Investment vehicles are financial instruments that individuals use to invest their money and aim for significant returns. Traditionally, these vehicles have included assets like stocks, bonds, mutual funds, and exchange-traded funds (ETFs). However, in the rapidly evolving world of cryptocurrencies, there are also investment vehicles that are specifically tied to digital assets.

Crypto-tied investment vehicles, also known as cryptocurrency funds, are investment products composed exclusively of digital assets. These funds provide investors with the opportunity to generate returns within the decentralized finance (DeFi) sector. They have become increasingly popular among both individual and institutional investors seeking exposure to cryptocurrencies.

When it comes to crypto-tied investment vehicles, there are several factors that investors should consider before making their choices. These factors include the risk category, asset composition, regulatory framework, restrictions, and diversification.

What is the Risk Category?

The risk category of a crypto-tied investment vehicle refers to the level of risk associated with the investment and the type of regulation that governs it. The risk category is an important consideration for investors as it determines the accessibility of the investment vehicle to different types of investors.

For example, some investment products designed for retail investors may have more restrictions on the types of digital assets included in the fund. These products may also involve the use of derivatives and concentration risks, which can increase the volatility of the investment.

On the other hand, investment vehicles designed for accredited or institutional investors may have fewer restrictions and offer a wider range of digital assets to invest in.

What is Asset Composition?

The asset composition of a crypto-tied investment vehicle refers to the specific digital assets included in the fund. Different investment vehicles may have different compositions based on factors such as the investment strategy, market conditions, and the expertise of the fund managers.

For example, some crypto-tied investment vehicles may focus on investing in a specific type of digital asset, such as Bitcoin or Ethereum. These vehicles are known as single-asset funds and provide investors with exposure to a specific cryptocurrency.

On the other hand, there are also multi-asset funds that include a diversified portfolio of digital assets. These funds aim to provide investors with exposure to a broader range of cryptocurrencies, thereby spreading the investment risk.

What is the Regulatory Framework?

The regulatory framework surrounding crypto-tied investment vehicles is an important factor for investors to consider. The regulatory landscape for cryptocurrencies and digital assets varies from country to country, and this can impact the accessibility and legal status of investment vehicles in different jurisdictions.

For example, some countries have implemented strict regulations on cryptocurrencies, while others have adopted a more lenient approach. The regulatory framework can affect the types of investors that can participate in crypto-tied investment vehicles and the level of transparency and security provided by these funds.

What are the restrictions?

Investors should also be aware of any restrictions that may apply to crypto-tied investment vehicles. These restrictions can vary depending on the fund and the regulatory environment in which it operates.

Some investment vehicles may have minimum investment requirements, lock-up periods, or redemption restrictions. These restrictions can affect an investor’s ability to enter or exit the fund and should be considered before making an investment decision.

What is diversification?

Diversification is a key principle of investing that aims to reduce risk by spreading investments across different assets. In the context of crypto-tied investment vehicles, diversification refers to the inclusion of multiple digital assets in a fund.

By investing in a diversified portfolio of digital assets, investors can potentially mitigate the risk associated with individual cryptocurrencies. For example, if one cryptocurrency experiences a significant decline in value, the impact on the overall portfolio may be reduced if other cryptocurrencies perform well.

However, it’s important to note that diversification does not guarantee profits or protect against losses. Investors should still carefully assess the investment vehicle’s composition and strategy to ensure alignment with their own investment objectives and risk tolerance.

What is the conclusion?

Crypto-tied investment vehicles offer investors a way to participate in the growing world of cryptocurrencies and decentralized finance. These investment products are composed exclusively of digital assets and provide exposure to the potential returns and volatility of the crypto market.

When considering crypto-tied investment vehicles, it’s important for investors to carefully evaluate factors such as the risk category, asset composition, regulatory framework, restrictions, and diversification. By doing so, investors can make informed decisions that align with their investment objectives and risk tolerance.

Who is the author?

Varit Bulakul is the president of investment banking and digital assets at The Brooker Group, a publicly listed financial consultancy and capital management company based in Thailand. Varit played a crucial role in the Brooker Group’s transition to digital assets and is leading the company’s vision of integrating the digital asset ecosystem into traditional financial services. The Brooker Group holds the distinction of being the first publicly listed company to directly invest in DeFi and DApps projects.

Prior to joining the Brooker Group, Varit worked as an auditor at Deloitte in Bangkok. He holds a Bachelor of Arts degree in Accounting and Finance from Lehigh University and a master’s degree in Accounting from Boston College.