Mutual funds have been known as a beginner-friendly investment option, but what happens when you put crypto in it?
Bitcoin + Mutual Fund
Investments in cryptocurrencies have been on the rise, and now there is a new way to invest in Bitcoin, without actually buying any Bitcoin. ProFunds, a Maryland-based firm, has launched, what is says to be the first publicly available mutual fund correlated to the value of Bitcoin. The fund, called the Bitcoin Strategy ProFund, invests in Bitcoin futures contracts and aims for results that track the price of Bitcoin — before fees.
ProFunds CEO Michael Sapir said in a release, as mentioned by Bloomberg, “Compared to directly buying Bitcoin, which may involve opening a new account with an unregulated party, this ProFund offers investors the opportunity to gain exposure to Bitcoin through a form and investment method that tens of millions of investors are familiar with.”
The Past
More companies are eager to launch crypto-related products because there is an increase in interest around cryptocurrencies. Bitcoin, the oldest cryptocurrency, is still loved by many, as it has been logging massive gains recently. Let’s go a little further back to understand the origin of Bitcoin.
The world’s first decentralised cryptocurrency, Bitcoin, was created in 2009 by the so-called Satoshi Nakamoto, whose identity is still a secret. We do not know the intention behind creating cryptocurrencies, but the timing at which it was created gives us some hints. The global financial crisis affected everyone in 2008, and the creation of a decentralised currency may indicate the lack of trust in financial institutions.
The Growth
In the beginning, cryptocurrencies weren’t that great due to the lack of faith in this new form of payment. There were questions about its legitimacy. For example, let’s take India. India is a market, where most people put their savings in a bank account. For years, the government spread awareness about mutual funds, and now we see more and more people choosing mutual funds to achieve their financial goals. However, even after all the advertisements done by Sachin Tendulkar to endorse mutual funds, a Jefferies report, as mentioned by Business Standard, said that mutual fund penetration in India is among the lowest.
India, a market where people took years to shift to mutual funds, is now seeing a jump in cryptocurrency investments. We can attribute the shift to the global acceptance of cryptocurrencies. More people jumped into the crypto boat after many companies began allowing cryptocurrencies as a payment method for their products, while celebrities also began endorsing them. In the summer of 2016, the value of all the cryptocurrencies in the world was barely $10 billion. But in late July 2021, the total value of the crypto market hovered near $1.5 trillion.
According to a recent study by major digital asset company Crypto.com, the number of crypto users worldwide has more than doubled from 100 million in January to 221 million in June. The study also showed that it only took four months to nearly double to the crypto users from 106 million in February to 203 million in May. For comparison, it took nine months for the global crypto population to reach 100 million from 65 million since Crypto.com began tracking crypto adoption levels.
The Glorious Future
People are buying more cryptocurrencies every day, and it isn’t going to stop anytime soon. A study by Fidelity’s cryptocurrency business, as mentioned in Reuters, found that seven in 10 institutional investors are anticipated to invest in or buy digital assets in the future. The research also found that, around 90% of those interested in investing in the future said they anticipate their company’s or their clients’ portfolios to include digital asset investments within the next five years.
ReportLinker stated, the cryptocurrency market is projected to hit $2.2 billion by 2026 from $1.6 billion projected in 2021, at a CAGR of 7.1%. Kenneth Rogoff told The Guardian, the Professor of Economics and Public Policy at Harvard University, “overwhelming sentiment” among crypto advocates is that the total “market capitalisation of cryptocurrencies could explode over the next five years, rising to $5–10 [trillion].”
Looking Ahead
It looks like cryptocurrencies are here to stay, as more and more people are buying them in order to diversify their portfolios. The above Bitcoin mutual fund is a proof of how more companies are becoming creative to sell crypto assets to their users. Countries in Europe, as well as Canada and Brazil, already have Bitcoin funds available to their investors. Apart from that, there are over 10 Bitcoin ETF applications waiting for the Securities Exchange Commission’s approval.
The approval of Bitcoin Strategy fund could lead the way for similar products, which includes ETFs. Matthew Hougan, chief investment officer of Bitwise Asset Management, as mentioned by Barron’s, “Bitcoin futures have been trading for a while, but putting them in a mutual fund changes the game for advisors.”
But not everyone is expecting cryptocurrencies to blow up in the future. Professor Kenneth told that the Bitcoin’s long-term value is “more likely to be $100 than $100,000.” He added, unlike physical gold, Bitcoin’s use is limited to transaction, making it more vulnerable to a bubble-like collapse.
Also, in a survey by JPMorgan, only 10% of institutional investment firms trade cryptocurrencies, with nearly half of them labelling them as “rat poison”, or predicting it would be a temporary fad, writes Reuters. Four-fifths of investors also anticipated regulators to get tougher on the asset class, while a massive 95% of them believed fraud in crypto world was “somewhat or very much prevalent.”
The thing that we have to keep in mind is that cryptocurrencies are highly volatile, and they are not regulated by any institutions. If Elon Musk tweets something about Bitcoin or if the Chinese government shuts down more of the country’s crypto mining operations, the prices of crypto assets will fluctuate.
So, choosing to invest in cryptocurrencies to make some quick buck might sound like a good idea now, but you should also be ready to deal with the volatility, and not dump your investments when the cryptocurrencies plunge suddenly. It is always advised to do thorough research on the investment products before investing, and it is wise to never fall for any fads. So, are cryptocurrencies a fad or a solid investment option? Well, we want you to decide that.
