🎓Common Strategies for Cryptocurrency Funds

A common strategy is called "long/short equity". In this scenario, fund managers look at undervalued and overvalued assets and place long and short positions accordingly. If their analysis is correct, their portfolio should reap the rewards whether the market rises or falls.

A similar strategy is called "market neutrality". Its purpose is to keep long and short positions in balance so that the risk of market exposure is reduced to zero. Thus, a manager may hold 50% long and 50% short positions in the same business or asset in order to reduce the risk of volatility. In particular, it is noted that reducing risk also means reducing returns, but for some this is a reasonable trade.

Another common strategy is arbitrage. There are many types of arbitrage, but it usually involves buying an asset on one exchange and then selling it on another exchange with a more favorable price. This is common in traditional hedge funds, but because it is new and volatile, the cryptocurrency market usually gives a more cost-effective opportunity. It is common for different platforms to offer slightly different prices for various assets, making it relatively easy to profit if the assets are manipulated in a timely manner. That said, speed is key, which is why high-frequency traders prefer this strategy.

There are other strategies, such as the "global macro" strategy, which trades on broad trends in the market, and the "short only" strategy, which focuses on explicitly shorting assets that managers believe are assets that are considered to be overpriced. Finally, there is the "Quantifier", which focuses solely on models, data and research to build portfolios. In practice, it is not uncommon to use many different strategies, but it is important that fund managers are clear about what they are doing and are transparent with investors.