Vanguard for crypto makes cryptocurrency investing safer

What is the safest way to invest in crypto?

People have invested in stocks, shares, property and bonds for centuries. The first stocks sold to the public were issued by shipping conglomerate The Dutch East India Company in 1602; you may know them from the “Pirates of the Caribbean” movies. In 1693, the British government issued the world’s first bonds, raising funds to fight the French. Records of the first property sale are disputed and may be from feudal Europe or ancient Rome.

In contrast, cryptocurrencies are a very new asset class, emerging in the wake of the 2008 Global Financial Crisis (GFC). The world’s first cryptocurrency, Bitcoin, was created by a pseudonymous person or persons calling themselves Satoshi Nakamoto. Bitcoin was created in protest against central banks printing unbacked fiat currency to bail out the banks who had caused the GFC.

This new currency was purely digital, and unlike its paper-based contemporaries, Bitcoin could not be printed, minted, created or inflated.

Bitcoin purchases, sales and transfers are recorded on an immutable ledger known as the blockchain, where anyone with internet access can see and verify any transaction. This creates transparency and trust in the network, and removes the possibility of printing, creating, copying, or double-spending of the currency.

“There will only ever be 21 million Bitcoin”.

Scarcity is a feature of the digital code that creates value. For most of human history, currencies have been backed by scarce commodities such as gold or silver, resulting in stable economies and minimal inflation.

Countries that departed from asset-backed currency have overwhelmingly printed too much fiat cash, inflating prices and diminishing the purchasing power of ordinary people. “Bitcoin fixes this” by deliberately being like gold and silver, a commodity in scarce supply, unable to be created or manipulated by central banks.

Following the success of Bitcoin, many alternative coins (“altcoins”) entered the marketplace, including currency alternatives that could be used as tokens or stores of value, and some that can be programmed to store data or run applications.

Many of the altcoins have aspects of fiat cash, stocks or bonds that can be printed or minted at will. Since the launch of Bitcoin in 2009, there have been over 20,000 different altcoins issued, with more being created every day.

With so many coins or tokens to choose from, how do you invest safely?

Some investors got lucky by purchasing stock in Apple, Amazon, Facebook or Tesla before the stock price ballooned, but those are very few. For every person who made millions investing in these untested and highly speculative companies in the early days, there are hundreds or thousands of investors who lost everything by investing in startups that later failed.

Legendary investors such as Sir John Templeton and Warren Buffett know they are human anomalies; both men have repeatedly stated that “99% of investors are better off using a diversified mutual fund”.

Diversification is a fancy word meaning put your eggs into different baskets. The World Wide Web was a brand-new invention in the 1990s but did not replace traditional businesses. While inexperienced punters were chasing “dot-com” bubble dreams, seasoned investor Buffett invested in market stalwarts such as Coca-Cola, Gillette and Bridgestone.

During the 1999 “Tech Wreck”, hundreds of dot-com and technology companies went bankrupt; even Apple and Microsoft stock plummeted by 40-60%. Meanwhile, people still drank soda, shaved themselves and drove cars.

Stocks in airline and travel companies were decimated following the 9/11/2001 terrorist attacks, but bonds, property prices and stocks in telcos, groceries and consumer staples soared. Investing, like life, is all about balance.

Until the popularisation of mutual funds, led by Vanguard, Blackrock, Fidelity and other institutions in the 1970s and 1980s, it was almost impossible for an ordinary investor to hold a diversified portfolio, due to the high prices and minimum investment size.

By pooling funds amongst many investors, the early hedge fund managers allowed regular people to set up a diversified portfolio of dozens of stocks and other assets for a much lower cost.

Crypto MonoFunds vs Diversified Crypto Funds

Inspired by the pioneers of investing, several diversified crypto mutual funds have emerged over the last few years. During the crypto-winter of 2022, some coins and exchanges experienced selling pressure, with FTX, Celsius, Terra Luna and others filing for bankruptcy.

Several of the higher-profile crypto fund managers collapsed in 2022 due to inexperience or over-leverage, such as Three Arrows Capital, Genesis, and Skybridge Capital.

More crypto hedge funds will likely emerge to take their place in the next few years as cryptocurrency investing becomes more mainstream.

Several investment firms concentrate on cryptocurrency “monofunds”, investing solely in one asset, such as Bitcoin or Ethereum. Crypto monofunds include the Grayscale Bitcoin Trust, and are tipped to include monofunds offerings from Blackrock, Vanguard, Fidelity, ARK and Wisdom Tree in 2024. Whilst these monofunds make investing in crypto easier for institutions, the lack of diversification may increase volatility and risk.

Truly diversified crypto funds include Digital X, the Apollo Crypto Fund, the Pantera Crypto Fund and the world’s first diversified crypto mutual fund, the  Bostoncoin fund, from BostonTrading.co.

The Digital X fund started in July 2019. It is only open to wholesale investors who have US$250 000+, with 1.5% management fee and 15% performance fee. It has returned 62% since inception.

The Apollo Crypto Fund started in February 2018. Their minimum investment is US$ 100,000, with a 2% management expenses ratio (MER) and 20% performance fee. Performance has been 155% since inception, but negative -32% for 2022 and 2023.

The Pantera Crypto fund started in June 2021 and requires a minimum investment of US$ 1,000,000. Management fees are 2% plus up to 40% performance fee. Less diversified than the alternatives, Pantera only held 13 assets in 2021, and in 2022, the fund lost 80% of its value, after a disastrous allocation of funds to the bankrupt crypto exchange FTX.

The Bostoncoin fund was the world’s first diversified crypto mutual fund, launching in January 2016. StartupsToFollow called it “the Vanguard of cryptocurrency” in 2022, and BostonTrading.co later launched two new crypto funds.

In addition to being the world’s first crypto mutual fund, the Bostoncoin fund was also the first diversified crypto mutual fund to list on international investment aggregator Morningstar. The Bostoncoin minimum investment is a more affordable US$ 10,000. Management fees are 2% with a 0% performance fee. The fund holds 30-40 cryptocurrency tokens, as well as holding stock in tech-related firms, such as crypto brokers, crypto infrastructure and fibre-optics. Due primarily to its healthy diversification, the Bostoncoin fund has outperformed Bitcoin for 7+ years.