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There has been one major shift in the cryptocurrency space in 2021 as large companies have entered the market. For example, payment giant PayPal implemented support for crypto payments, Elon Musk’s company began investing in Dogecoin, and Coinbase, the largest US exchange, went public. These are far from all the events that pushed investors to invest in crypto companies.
Separately, it is worth noting about the Coinbase IPO, the example of which other companies may follow, which will positively affect the share price.
The main difference is the lower volatility of stocks, since they do not depend on the price of bitcoin or altcoins. Even during a correction in the cryptocurrency market, company shares can grow in price.
Nevertheless, there is still a correlation – if the market grows, then the company’s shares will also grow.
In this post, we will discuss the pros and cons of investing in mining companies and cryptocurrencies.
Benefits of investing in stocks:
- Much less volatility
- Thorough check of the company by the regulator before the IPO (it is almost impossible to stumble upon scammers)
- Hedging risks during bearish sentiment in the crypto market
Disadvantages of investing in stocks:
- High barrier to entry
- Focus predominantly on experienced investors
- Profit from rising stocks may be less than profit from rising cryptocurrencies
Benefits of investing in cryptocurrency:
- High profit generated due to high volatility
- Minimum entry threshold ($10 will be enough)
Disadvantages of investing in cryptocurrency:
- Half of the projects on the market are hype or fraud
- In the event of a bear market, you can lose up to 95% of the deposit (especially when it comes to altcoins).
Investments in mining companies
As of December 2021, four mining companies Marathon Digital, Riot Blockchain, Hive Blockchain and Hut 8 Mining are available for investment. Let’s talk about them in more detail:
Marathon Digital
Marathon is engaged in cryptocurrency mining and provides asset storage services. The service is focused mainly on large investors, and the company itself is striving to become the largest in the market with a 15-fold increase in capacity in the next year and a half.
Riot Blockchain
Riot Blockchain focuses on bitcoin mining and does not look towards altcoins, which is only a plus. Bitcoin is getting stronger every year, which cannot be said about altcoins (with the exception of Ethereum, of course).
Hive Blockchain
If the previous two firms are based only in the USA, then Hive Blockchain is hosted in Canada, Iceland and Sweden. This allows it to use hydroelectric power plants located in Canada and Iceland’s cheap geothermal energy (thermal energy from the bowels of the earth). Hive is one of the few companies that is betting on mining with green energy to harm the environment.
Hut 8 Mining
Hut 8 Mining is a worthy competitor to Marathon and Riot, which is listed on the stock market. The company is actively working to increase the computing power for bitcoin mining and in the long term can become one of the market leaders.
These are examples of mining firms whose shares can be bought on the stock market. Of course, there are other representatives in the mining sector, but they are not as common in the media as the ones listed above.
In 2021, the volume of assets under management of crypto funds reached $73 billion, which is three times more than a year earlier. Against the backdrop of such large investments, we decided to figure out what crypto funds are and why investors prefer them, and not the direct purchase of cryptocurrency.
What are cryptocurrency funds?
Many of us remember 2017, when all cryptocurrencies grew more than 10 times and this “make money fast and big” hype became the main factor in the emergence of investment funds in the crypto space.
Cryptocurrency funds are funds that invest in cryptocurrencies or in baskets of various assets that contain cryptocurrencies. The main task of funds is to safely manage assets and maximize investor profits. There are funds with a high entry threshold for large investors, and with a low threshold for retail investors.
This begs the question: why would investors directly buy assets? It’s simple: in many countries it is not possible to buy cryptocurrency on exchanges (for example, the USA) and this requires funds that also help pay taxes and keep records.
Crypto funds employ experienced managers and managers who take care of everything from news monitoring to asset management. The investor only needs to sign an agreement, make a deposit for a certain period and wait for the end of work with the fund.
Crypto funds are available in two types:
- Closed . Only qualified investors work with them. These are the largest funds on the market, accumulating hundreds of billions of dollars, such as Grayscale Investment.
- Open . They are suitable for retail investors as they are unregulated and available as fund shares or ETFs.
By classification, crypto-funds are divided into:
- Venture . Such funds invest in blockchain and crypto companies (for example, BlockTower or Pantera). Retail investors cannot work with them.
- Hedge Funds . These earn only on the rise or fall of cryptocurrencies (for example, Polychain or Multicoin), but their shares are not listed on stock exchanges. By the way, American hedge funds mainly work with qualified investors whose capital is more than $5 million. Funds can focus not only on Bitcoin or Ethereum, but also on risky small-cap altcoins.
- ETFs . They are crypto funds whose shares are traded on stock exchanges. The fund acquires cryptocurrencies and then sells their shares in the form of securities through intermediary brokers. It was the crypto-ETF that made it possible to increase the number of crypto-investors. Also, these funds attracted those investors who preferred to use traditional regulated instruments.
CoinShares analysts claim that the majority of assets are held in passively managed crypto funds. In simple words, such funds simply buy cryptocurrencies and expect them to grow in the medium and long term.
It is noteworthy that the funds charge a commission ranging from 5% to 20% for asset management. Moreover, assets cannot be withdrawn before the deadline (although there are some exceptions).
Cryptocurrency funds in numbers
As for profitability, everything directly depends on the crypto market. If in 2017 the average yield was 1700%, then in 2021 it will be 120%.
A few more numbers. According to Crypto Fund Research analysts, 290 funds were launched in 2017, 284 in 2018, 101 in 2019, and only 100 in 2020, despite Bitcoin’s rally. Nevertheless, the volume of investments in funds has grown tenfold.
And by the way, the share of crypto funds is 1.5% of all existing hedge funds with a capital of $3.8 trillion. That is why the growth potential of the crypto space is simply huge.
The vast majority of funds manage small capital – no more than $20 million, and only 40 funds have asset portfolios of more than $100 million.
And finally. The average investment in crypto funds is $146,000.
Cryptocurrency funds are an important element of the market infrastructure, as they act as an intermediary between investors and cryptocurrencies. We are facing a real maturation of the crypto industry and the more such funds there are, the more developed the cryptocurrency sector will become.
Recall that we recently told who bitcoin whales are and why they can easily bring down the market.
Summing up
Investing in mining companies may be suitable for those who want to hedge the risks of investing in cryptocurrencies and do not plan to build their own mining farms. If you invest, then only in large companies that have friendly relations with the regulator and solid computing power for cryptocurrency mining.
