Investing in cryptocurrencies can be done through various means. Using a Bitcoin fund, for example, is a very popular and viable method. It has certain downsides to it as well, but can be a great option to enter new markets accordingly.
A Bitcoin Fund Feels Similar
Anyone who has ever put money into a fund of any sort will see no real difference with a Bitcoin version. That is, on the surface, as a Bitcoin fund works differently under the hood. It is composed of Bitcoin and its market performance only. This introduces a few different rules, options, and potential drawbacks to take note of.
Companies offering a Bitcoin fund will have a significant portfolio composed of nothing but Bitcoin holdings. Investors can buy shares of this fund and reap potential profits. However, if the BTC value drops, the shares will become worth less as well. Considering how Bitcoin performs well nearly every year, investing in such a fund is almost a no-brainer.
That being said, the Bitcoin fund is a portfolio that needs to be managed and maintained. Hedging one’s exposure to Bitcoins notorious volatility can be a very tough balancing act. Those managing the fund can opt for long or short market positions and play the market accordingly.
It is often advised to keep one’s money in a bitcoin fund for a longer period of time. Bitcoin is not a get-rich-quick scheme. In fact, its proper value is unlocked over time. How long one wants to stay in the fund, depends on personal risk appetite. Investing is never without risk, and Bitcoin is perhaps slightly riskier than other investment options.
It is not hard to see the potential drawbacks when investing in a Bitcoin fund. Any form of “artificial” investment vehicle will offer some degree of convenience, but it has other aspects that aren’t as positive.
Investing in such a fund does not mean one owns any BTC. Instead, investors own shares in the portfolio but will never receive any BTC in their wallet – unless they cash out their position and the service provider allows for such an option. This is not the same as buying Bitcoin directly.
Secondly, one has to put a lot of faith and trust in the fund provider. Those who run the show can make wrong decisions, or may not always have honest intentions. Considering how investors need to make upfront financial commitments, this option is not always ideal. Thankfully, there are plenty of legitimate Bitcoin and cryptocurrency fund providers out there today.
Investing in a Bitcoin fund is not for everyone. Nor is it intended to be as such, as this is still a risky investment option. Cryptocurrencies are notoriously volatile in nature, and can go through extensive bearish periods for no apparent reason. At the same time, their value can also explode, for no reason.
From a convenience point of view, a Bitcoin fund can offer benefits. However, those who really value cryptocurrency and financial ownership may want to look elsewhere. Bitcoin is designed to empower the user, and not require them to trust unknown individuals.