Are Crypto Investment Funds a Sensible Alternative?

Crypto funds are not entirely new, but they are still very limited in what they offer. Let’s explore the pros and cons of crypto investment funds.

The fast-moving cryptocurrency space has certainly captured the imagination of a huge portion of the global population, however, the amount of interest is disproportionate to the amount of investment seen. Luckily, that is all changing, and there are a few good reasons for that.

In the last four years or so, investing in Bitcoin has moved on from simply signing up to an exchange, buying, and then 'hodling'. An influx of major cryptocurrency, institutional and traditional investors has shaped the space into one that has much bigger potential and opportunity for investing.

But, this change in mindset around cryptocurrency investing is actually being driven by the services on offer with cryptocurrency investment funds being an ever maturing option for all kinds of crypto investors. However, the current funds are far from well established, far from the norm, far from ideal and more of a novel and niche play thing.

A number of barriers to entry still exist for investors wanting to be part of a crypto fund, such as poor infrastructure, unsatisfactory service, low understanding or knowledge, volatility and fear of the market.

This disparity between crypto interest and unsatisfactory offerings from the current crop of crypto funds is being tackled by OSOM and the Crypto Autopilot. Looking to lower the barriers to entry, and provide better returns than simple Bitcoin 'hodling' is what makes Autopilot a sensible alternative to traditional funds, and even crypto funds we see today.

Understanding the Crypto Fund Hype

Crypto funds are not entirely new, but they are still very nascent in what they offer. Their shortcomings have also been highlighted more recently as a new wave of investors has come in seeking the potential of crypto in an easy to use, and quick to give results, kind of way.

The GameStop and WallStreetBets saga highlighted the desire of young investors to seek opportunities that offered better returns, more freedom, as well as the ideals that crypto holds inherently. "Come for the money, stay for the revolution." has almost become the tagline of this new crop of investors.

So, the money is there - but the current offerings for crypto investment solutions has not got the feel of a financial revolution with unnecessary premiums on crypto funds and indexes; short-sighted rebalancer funds; convoluted social trading platforms and poorly constructed bot traders.

Arguably one of the most widely known crypto funds is Grayscale Bitcoin Trust (GBTC) which emerged as an institutional investors entry point to Bitcoin, but its appeal has quickly waned as people look to realize there are more sensible crypto funds out there.

Recently, On-chain analytics have reported that GBTC has stopped attracting fresh investments since February 2021 - this reflected institutional withdrawal or profit-taking from the fund.

It is not too surprising given the wave of more sensible alternatives out there, and also considering the GBTC premium was upward of 30% at the beginning of this year.

Furthermore, as a product meant to put investors at ease, the fund failed there too as Daniel Martins, founder of independent research firm DM Martins Research, highlighted Grayscale reported 500% higher annualized returns than Nasdaq, but its correction was also worse than the 2008's recession - 82% vs. Nasdaq's 17%. That made Grayscale's Bitcoin investment product an "ultra-leveraged bet," accompanied by an inferior risk-adjusted performance. The analyst added:

"GBTC's volatility has been nearly nine times as high as the Nasdaq's: 145% vs. 17%."

The hype and excitement about what a crypto fund can offer in terms of returns is clear to see, but the fact that grayscale is hemorrhaging fresh investment at a time where crypto investment is at all time highs shows a lot about the current crop of investment products.

Alternatives do exist, but a lot of them are cutting corners or wrongly applying cookie-cutter solutions from other markets to crypto, with offerings that hardly encompass the feeling of a 'crypto revolution. Rebalancers, such as Shrimpy, which also offers bottrading are not sophisticated enough in a market where the "edge risk" (the risk that an asset's price suddenly drops to near zero) is much more present than in traditional markets..

Index funds, a great idea in established markets, are often slow to rebalance and only cover a few cryptocurrencies in an ecosystem that has hundreds of strong projects with good gains; while social trading often has a feeling of 'too little, too late.' or just plain inconsistent.

There has also been a lot of talk about ETF and more Wall Street-like cryptocurrency options being offered. The idea behind this is to once again court the traditional investors and those who prowl Wall Street.

However, that notion is already becoming outdated as the people looking at crypto are those that appreciates the values of the space - decentralisation, freedom, simplicity, inclusivity etc - and not those who have already found their niche in stocks.

A Bitcoin ETF, for example, would then make investing in the asset only available in traditional trading hours, not the global, always on position it currently holds. Additionally, cryptocurrency is a revolution that puts people in charge of their money, and an ETF is a way to be in crypto, without actually holding and being in control of your crypto.

Investors deserve more than a Wall Street wrapper around cryptocurrency. Investors deserve true access and exposure to crypto whenever crypto markets are open. And there is no reason to pay anyone 3.5% in Total Expense Ratio for just hodling some Bitcoin for you. This leaves many asking what the sensible alternative is, today. And this is where OSOM comes in with Crypto Autopilot.

Why Crypto Autopilot Makes Sense

Autopilot, by OSOM, is not like anything else that is on the market today. Instead of trying to take shortcuts to setting up crypto funds, a lot of time and effort has gone into creating an avenue for a greater range of crypto investors to pick up, profit from, and enjoy using.

Autopilot looks at several months of past price data to build a portfolio for the medium to long term (2.5 to 5 years) with the objective of achieving stable growth - which means avoiding drawdowns. It optimises for a 4th generation risk measure - iVaR - which can roughly be described as the time it takes to recover any losses.

This algorithm does not purport to be a magic bullet to ensure always-on gains or magical ways to beat the market. It rather sets out to optimize investing in the cryptocurrency market by looking at many assets, building a portfolio for the long term and reconsidering its position multiple times a day.

It therefore offers a large exposure similar to large index funds, with the watchful eye of an artificial intelligence to try to avoid the edge risks and the reactivity of an algorithm that never sleeps.

A look at the performance of Autopilot from 1 Feb 2020 to 30 April 2020 shows how it behaved during the Covid-19 related crash:

autopilot performance

Autopilot "dropped" less than either the C20 or Bitcoin. Then, by April 8 the Autopilot had recovered to its value from 1 February, when C20 & Bitcoins were still suffering 20% losses.

Autopilot is an algorithm optimized for minimizing risk. This may sound counter intuitive in the volatile cryptocurrency market, but doing this leads to ongoing and solid gains compared with trying to optimize for maximum gains.

This strategy has been put to the test as academic literature downside volatility-managed portfolios and a high degree of diversification are linked to outperformance.

Below is a graph that shows the algorithm being back-tested on the EUROSTOXX 50 over 16 years, its outperformance is hard to miss.

algorithm backtesting

Even the manner in which the assets are chosen to be a part of the Autopilot portfolio stem from solid foundations in cryptocurrency investing. Autopilot currently tracks about 200 cryptos and has "whitelisted" a little over 50. The criteria for inclusions are the following:

  • High market cap: a relative sign of quality
  • High liquidity: because we want to be able to sell your position if we need to, and illiquid coins would see too much slippage
  • No privacy coins (Dash, Monero): because the regulators really don't like them and there is a serious risk they will be increasingly delisted from exchanges
  • No joke coins (Dogecoin): they are undoubtedly fun, but we want to invest in projects with a real future
  • Mostly no forks (Bitcoin Cash, Ethereum Classic): most of the forks don't appear to really have a future and don't have a lot of developer backing, so they don't make for very good investments.
  • No stablecoins (Tether, USDC, EUT, EURS): the idea is to help you access the value of true crypto projects with ground-breaking possibilities. Not to have you hold digital cash.
  • No commodity-backed coins: the idea is to help you access the value of true crypto projects with ground-breaking possibilities. Not to have you hold gold or silver.
  • No derivatives or synthetic products: we like the simplicity - and relative safety - of investing directly in the real thing.

A New World of Crypto Funds - Not funds!

The investor of today is very different from those of 10 or 20 years ago. And the crypto market is not the traditional market.

In fact, both investors in crypto and the crypto markets are also quite different from those of three or four years ago. Today's investor is not satisfied with buying and holding Bitcoin, and the markets offer so many opportunities that there is no reason why they should..

Investors are looking to invest in crypto, but those providing investing services for crypto need to start meeting demands of simplicity, safety, diversification and excellent returns in easy to use and understandable packages..

Today, OSOM and Crypto AutoPilot are the only ones that offer that. And there is no need for a traditional "fund-like" infrastructure as all crypto are extremely fractionable (you can buy 1/100th of a Bitcoin, but you can't buy 1/100th of an amazon share). The OSOM Crypto Autopilot is a unique option built for Crypto, not a recycled idea from traditional equity and forex markets, OSOM has crypto values at its core with the objective to get as many people to enjoy it as possible, solid returns that beat the market based on minimizing risk, and a brilliant user experience. With this the Crypto Autopilot becomes the most sensible option.