Digital asset hedge fund managers use a broad range of fundamental and quantitative strategies, which can be roughly divided into the following categories: index and token-specific funds, long-only funds, algorithmic quant funds, and node funds. Moreover, in addition to investing directly in crypto-asset tokens, funds can invest indirectly, using options and futures and through income-generating assets inherent in the underlying technology. Hedge funds can also invest in liquid securities issued by public companies that hold crypto assets. Still, for the most part, equity investment is limited to venture capital and private equity funds, given the illiquid nature of most crypto-asset companies.
The regulation of cryptocurrency fund managers heavily depends on how digital assets are classified. In early analysis, US government regulatory bodies often categorized digital assets differently. US regulatory bodies overseeing digital asset fund managers include the SEC, the CFTC, the IRS, and Fincen.
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Digital asset fund managers face substantial risk in disclosing their investment fund strategy and have limited precedent in preparing those disclosures. As an emerging asset concept, distributed ledger technology presents a myriad of potential regulatory considerations, technological complexities, and market uncertainties with few analogous instruments. As with any fund offering disclosure, digital asset fund managers are advised to err on the side of thoroughness and caution in disclosing the breadth of the investment strategy and its potential risks.
