Profits and losses of bitcoin and other cryptocurrencies investment funds

Mutual funds with cryptocurrencies are useful in some cases but have been a mechanism used by white-collar criminals to commit exit scams. So are investment funds with crypto currencies necessarily bad?

More and more yellow media are making a reasonable sum of money with headlines like “Why bitcoin is a scam” or “People trapped in a ‘financial chigüirito’: scam with crypto coins amounts to X amount of euros.” However, beyond reviewing cases in which people have given large sums of money to third parties in the hope of making a profit and run into the loss of all their funds, they do not stop to give useful advice to users, which leads to a misconception about crypto coins to those unfortunate readers who do not approach such texts with a critical eye.

Yes, indeed, the scams are there, and the crypto coins have been used by cybercriminals and scammers to get theirs, accumulating some USD 426 billion in 2019 alone. However, it has already been stated on other occasions that scams are not a phenomenon of crypto-money, that scams are as old as human existence, and that other traditional mechanisms are also used to commit them.

In the yellowish headlines we mentioned earlier, not even the media care to mention that the mechanism used to carry out specific exit scams are some investment funds with cryptocurrencies, and readers assume, bird’s eye watching the profusion of headlines, that bitcoin and cryptocurrencies are something terrible.

An investment fund qualifies in the category of collective investment institution (IIC), where several investors, natural or legal, pool their funds to be invested in various financial instruments. Traditionally, the company that receives the responsibility of managing the funds is a bank or a financial institution. Similarly, the risk is reduced because the funds are invested in numerous financial instruments, and the law supports and regulates the establishment of these institutions.

There are two types of funds according to this aspect: those that allow shares to be sold at any time, and those that limit liquidity to specific periods.

Because of the nature of cryptocurrencies, which are regulated in different ways around the world (even being banned or in a legal vacuum in some places), some fraudsters have taken the opportunity to promote investment funds that end up plundering users.

From risk to profit: investment funds with cryptocurrencies

However, this cannot lead us to say that investment funds with cryptocurrencies are not useful. Newcomers trying to make their first investments do not have the knowledge to deal with the terms of trading and the profusion of cryptocurrencies that exist, and it is not wrong that they have some help in this regard. If such lousy investment funds with cryptocurrencies were, they would not have as many recognized investors as, for example, Yale University, or CBOE would not have insisted on submitting an investment fund with cryptocurrencies to the SEC after the launch of bitcoin futures.

The trick, named countless times, is to know how to identify the warning signs to avoid scams: to verify whether the company is authorized by some regulatory entity (such as the CNMV, which last year established criteria for the creation of these funds in Spain) or if it is the object of some investigation. Similarly, an exhaustive investigation should be carried out, and all the mechanisms used by the fund should be asked.

Besides, if inviting others to invest in the fund with cryptocurrencies is a requirement for participation, it is most likely to be a Ponzi scheme. Of the investment funds with cryptocurrencies, it is also necessary to know that avoiding the risk of suffering losses with the investment is impossible, so someone who offers a risk-free return is undoubtedly a liar to whom no amount of money should be given.

Cryptocurrencies, unlike traditional assets, offer users the possibility of making investments without resorting to a third party. Therefore, although investment funds with cryptocurrencies are useful, they are also dispensable.

Thus, one of the safest ways to invest with cryptocurrencies is to do it ourselves. However, to do so, it is necessary to educate oneself about many aspects of trading. There are numerous specialists who, although they do not have the alchemical knowledge to transform metals into gold, know how to handle themselves in the market and have opened academies to train those interested.

Likewise, a key factor not to fail in the attempt to make investments with cryptocurrencies is to keep volatility in mind. The price of cryptocurrencies varies greatly, and although we are in the midst of an upward trend, things can change from time to time, and we can lose our funds. Therefore, it is necessary to know the historical behavior of both the market and the cryptoactive we have chosen to invest and make the investment consciously.

Cryptocurrencies have taught us that it is possible to have financial freedom, that intermediaries can be eliminated, and that peer-to-peer trading is not a pure utopia. However, this freedom also gives us the option of choosing which intermediaries we want to keep and which we do not: investment funds with cryptocurrencies are one of them. Thus, the answer to the initial question is that if you want to use them, the investment funds with cryptocurrencies are not necessarily inadequate as long as there are an investigation and support to verify that they are well managed.

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Views expressed here are open to research and analysis from the reader’s side

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