Firstly, you need to know the basics to know more about mutual funds and cryptocurrencies collaborating. So let us brush up a little on the basics and understand the roots of cryptocurrency and mutual funds.
What is cryptocurrency?
Cryptocurrency is a type of payment that may be exchanged for products and services online. Many businesses have created their own currencies, known as tokens, which can be exchanged for the goods or services that the business offers. Cryptocurrencies operate on blockchain technology.
What is a Mutual Fund?
A mutual fund is a form of financial vehicle that invests in securities such as stocks, bonds, money market instruments, and other assets by pooling money from multiple investors. Mutual funds are managed by experienced money managers who allocate the fund’s assets in an attempt to generate financial gains or income for fund investors.
Now let us look at how both of them have recently connected.
There are two companies that have initiated a collaboration of both these investment instruments together and recently released them in India, one from the United States and another from Delhi, India.
Mutual Fund Bitcoins
ProFunds, a Maryland-based firm, announced the creation of the first publicly available mutual fund correlated to the value of the largest cryptocurrency. The Bitcoin Approach invests in Bitcoin futures contracts with the goal of tracking the digital currency’s price before the fees.
It’s the latest financial product to provide Bitcoin exposure as corporations scramble to find methods for clients to own a piece of the once-obscure digital asset. More than a dozen investment firms have registered to start exchange-traded funds that invest in Bitcoin or Bitcoin futures. For the second time in 2021, the Securities and Exchange Commission postponed a decision on whether to approve a Bitcoin ETF.
The launch coincides with Bitcoin’s biggest winning streak of the year, with the token jumping as much as 7.5% on Wednesday and regaining control of the $40,900 mark. The price of the cryptocurrency has fluctuated significantly over the last year, and the SEC has warned investors about the hazards of investing in mutual funds that include Bitcoin futures.
Buying Bitcoin and other crypto coins directly has become easier and there are many ways to put money into the currency without having to open a digital wallet or store vital passwords.
Mudrex, a crypto asset management platform, has developed ‘coin sets’ to entice retail players, allowing users to invest in a variety of mutual-fund-style crypto products. This is the first time such a product has been made available to retail investors. Such investment products were previously available but only to HNIs and institutional investors.
Coin Sets are a collection of crypto tokens that will be centered on a specific topic, and investors hope that this notion will progressively play out, increasing wealth in the long run. It is a mutual fund-like product with a superior risk-reward ratio, designed for investors who see cryptocurrency investments as a long-term wealth creation opportunity. The product is likely to increase retail crypto participation.
Why Are People Still Afraid of Crypto Investments?
Nonetheless, some individuals and institutions prefer to purchase products that are subject to some level of governmental control. Everyday investors are considerably more familiar with mutual funds than they are with the complexities of the bitcoin market. The overall expense ratio of the ProFunds product is 1.15%, which is slightly more than the average 1% or less charged in ETFs.
In comparison to directly purchasing Bitcoin, which may require opening a new account with an unregulated party, it provides investors with the opportunity to gain exposure to Bitcoin through a form and investment method that tens of millions of investors are familiar with.
Why is Bitcoin Called the Future?
Well, the internet changed everything in the 90s. Now, cryptocurrencies have the promise of creating a disruptive change and enabling investors with access.
While Bitcoin prices have risen in the past, the journey has been bumpy. The cryptocurrency’s price fluctuates substantially up and down, indicating that it is highly volatile. Bitcoin has been substantially more volatile than more traditional assets such as stocks, bonds, and government currencies, occasionally up to 5 times more volatile than the stock market. Its volatility has previously exposed investors to significant losses.
The Fund intends to provide less volatile Bitcoin exposure by actively modifying allocations to Bitcoin Futures and cash. This has the ability to reduce the impact of market downturns and poor market timing while enhancing risk-adjusted returns.
With this being said, mutual funds do not invest in cryptocurrencies, but there are two new products in the market that are a combination of the two. But there is a large rivalry happening on what is a better investment, whether it is mutual funds or crypto.
Given this, you know that there are only two crypto and mutual fund-related assets in the market all around the world today. They are two products that have just been released into the market and have not quite yet gained popularity. But still, crypto and mutual funds have been growing simultaneously, irrespective of investors battling one on the investments options being good over the other.