CRYPTO FUND CASE STUDY

How we helped one client create a cryptocurrency investment fund

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THE CHALLENGE

We were contacted recently by a UK trader who had been successfully trading cryptocurrencies on his own account for over three years.

He was receiving interest from external investors wanting to participate in his crypto strategy.

The regulated fund route seemed to be the obvious solution. However he did not understand what the requirements were or even how to go about setting up a fund.

Also, his first impressions were that cryptocurrencies are not recognised by many financial regulators. Therefore, he concluded that trading a crypto strategy through a fund vehicle would be fraught with regulatory hurdles.

The client discussed his situation with his broker and they referred him to Ifina.

We met with the trader and explained that there are many things to consider when setting up any regulated investment fund. However with a crypto fund, there is a great deal more to consider…

Many of our clients advise that they have initially been deterred from establishing a crypto fund, as at first sight it appears complicated. Here at Ifina we have the solution…

COMMON CRYPTO FUND QUESTIONS

Interested in starting a crypto investment fund? Here’s what you should know…

Do I need to be regulated to manage a cryptocurrency fund?

Absolutely, yes.

Our trader explained that he was not regulated in the UK – and having researched the costs and timeframe for becoming regulated, he felt it was too difficult to obtain the necessary FCA permissions.

We offered our trader an alternative solution. We introduced him to a UK FCA registered Investment Management Company that would consider ‘hosting’ him under their regulatory umbrella.

The costs associated with being FCA hosted are considerably less than for setting up an independent FCA registered investment management company – and the timeframe to obtain the necessary FCA permissions is in the region of 5/6 weeks.

Our trader found this to be an ideal solution.

Which Bank do I choose for my cryptocurrency investment fund?

Finding a banking institution to provide a bank account for a cryptocurrency fund (that is providing a bank account to receive investor subscriptions) can be problematic.

The major international banking institutions will not accept a crypto strategy fund as they consider it to be of possible reputational risk.

This said, there are banks that will act for a cryptocurrency fund and Ifina has established relationships with a selection of banks and can therefore offer clients a choice of banks located in Malta, Gibraltar and Switzerland.

Which Brokers/Exchanges can I choose for trading the investment strategy of my cryptocurrency investment fund?

We advised our trader that the choice of crypto broker/exchange is his.

The crypto funds we have already established trade with an array of brokers/exchanges – and it is typical that the fund will have numerous trading accounts to diversify the risk of one broker/exchange failing.

What are the requirements for safe keeping/storage of the fund’s crypto assets?

We explained to our trader that protection and security of the fund’s digital assets is paramount and therefore a great deal of thought should be given to the security protocol that will be adopted to ensure that the digital assets are protected and safe.

There are numerous options available, cold storage wallets or utilising the exchange and broker storage facilities. There are now available crypto custody service providers that offer safe keeping of digital assets which are backed by an insurance policy providing cover if its custody systems are hacked.

What is crucial, however, is that whatever security protocol is adopted by the fund it should be as robust as possible and explained to the investors and that the potential risks are fully disclosed in the fund offering memorandum.

CONCLUSION

In conclusion, we were able to explain to our Trader that establishing a crypto fund is not as complicated as he initially envisaged.

If you would like to create your own crypto investment fund, please get in touch with us using the contact form opposite.

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