Move Over Mutual Funds, Here Come Crypto Investment Managers
Companies like Mudrex want to offer investment management services to crypto enthusiasts. Will users bite?
Want to invest or trade in cryptocurrencies? But not sure which one you should pick in a rapidly changing ecosystem? Bitcoin or Bitcoin Cash? Ethereum or Solana? Maybe Shiba Inu? Or Dogecoin?
Worry not. As crypto investments gather steam, those offering their services to advise on what to buy, sell and hold, are also cropping up. While globally, Bitcoin ETFs may be within sight, a more informal form of crypto investment management is also being attempted.
Companies such as Mudrex, Revix, Triaconta, and CoinJar have started offering bundles of cryptocurrencies that emulate a managed fund.
For instance, if you believe that NFTs or non-fungible tokens are the future, a thematic bundle that supports Ethereum, Solana, Cardano, Polkadot, among others, may be the most appropriate choice for you. If you are in the market for riskier tokens, a basket with the Elon Musk favorites Shiba Inu and Dogecoin may be up your alley. But if you believe old (by cryptocurrency standards) is gold, then a Bitcoin-heavy basket may be your choice.
What's On Offer
Mudrex, a Bengaluru-based crypto company, claims to provide enthusiasts baskets of multiple cryptocurrencies that are routinely rebalanced based on market dynamics. Similarly, South Africa-based Revix also offers bundles like 'Payment' and 'Top 10'. Investors can can pick and choose from Triaconta's collection of currencies.
Revix and Triaconta did not respond to emails from BloombergQuint.
Unlike mutual funds or ETFs, though, customers do have a choice here to rebalance their own bundles.
Edul Patel, co-founder and chief executive officer of Mudrex, said that sometimes the volatility in crypto assets is discouraging. "Our baskets help with diversification as well as picking what's suitable for the users."
We're trying to create an asset-management platform, but for the new-age. Our baskets indirectly advise the user, and they're free to apply the rebalance updates at their convenience.Edul Patel, Co-Founder And CEO, Mudrex
Each bundle has a fundamental rule defined.
For example, Mudrex's 'bluechip' segment only invests in the top five cryptocurrencies by market cap, with weight ranging from 5-50%. It ensures that a basic methodology is followed and human biases are weeded out. On the other hand, Revix's Top 10 option equally weights the top cryptocurrencies.
The point isn't to create a fund that can outperform the market but to set a new index-like structure that can provide balanced returns to retail investors, said Patel.
The platforms are not collecting any fees or charges for these services right now, but Mudrex said it would look to monetise via a monthly fee in the future.
Are crypto investors buying into the idea?
Mudrex claims it launched 12 bundles three weeks ago and has already attracted 600 users with more than $700,000 in assets under management. It has partnered with crypto exchanges Binance, Coinbase Pro, OKEx, and FTX to facilitate transfers.
Mudrex also hosts a marketplace where traders offer proprietary trading algorithms. Just browse through the list and select one based on risk appetite, historical returns, and monthly fees.
A similar approach was attempted by a company called Quadarch in 2017. The idea, according to founder Nav Chatterji, was to take a bucketed approach to investing in crypto. In 2018, the service was paused due to restrictions imposed by the Reserve Bank of India. However, the company restarted late last year and is now planning a technical analysis focused fund that helps support new and aspiring blockchain technology, Chatterji said.
Chatterji believes that crypto funds should be encouraged.
India should allow crypto funds and regulate them. The funds should enable folks to invest in vetted pre-determined buckets based on risk, based on themes that are explained in layman terms.Nav Chatterji, Founder, Quadarch
Mixed Response From Users
As part of the process, the user has to transfer their crypto holdings to the company's wallet. That may turn away some potential users.
"The concept of a managed portfolio attracted me the most. I've burnt my hands in crypto previously due to the Dogecoin crash, so taking it slow in a low-risk environment was preferred," said Karan Punamiya, a 24-year-old investor from Mumbai. "But it is often confusing because you need to transfer your stablecoin holdings from the existing exchange, and there's no direct purchase option. It can get cumbersome sometimes."
Delhi-based Abhijay Jain and Aayush Garg, who considered investing, eventually took a step back because of the unstructured nature of the offering.
A mutual fund has a clearly defined and detailed methodology that dictates how it will operate. There's even a fund manager "we can look up", they said. "Right now, all companies call themselves experts and want us to take their word for it, and it isn't enough," they said. Besides, "too many scams" made Jain and Garg cautious.
Even the option to select algorithms didn't leave them satisfied as the identity of the person offering it is not public.
According to the Mudrex website, the algorithm with most investors is Windfarm BNB and is managed by a user called ThornyTech, who has earned 1279% returns in 550 days. "Will you trust your holdings to a trader who goes by that name?" the duo asked, chuckling.
Mudrex says it is working on bringing a human element to its offerings and stressed that all its systems are secure and adhere to global compliance standards. The algorithms are thoroughly back-tested and screened by the Mudrex team to ensure there's no undesired outcome.
"We're trying to make a community around the bundles as well. We know there's lack of trust right now, and we're constantly addressing it by being fully transparent," Patel said.
Even relative veterans in the crypto investment space aren't buying into the model, yet.
"Platforms like Mudrex are semi-risky. They're flirting between trading and investing," said Vishal Gupta, founder of TAG Protocol, an NFT platform. "I'm always sceptical about algorithms because they are somebody else's strategy, and the risk is simply too high. They need to clearly describe how the algorithms work."
Gupta, however, saw benefit in the bundles being offered since they diversify risk. "But I'd raise red flags over the allotment of a few cryptocurrencies such as Dogecoin, Bitcoin Cash, and Ripple. Not every token that's popular is bound to grow."
Traditional financial advisors also advise caution, since the space more broadly is unregulated and redressal mechanisms are non-existent.
"Invest only what you can afford to lose. While the promises may seem extremely lucrative, there's also no guarantee or fallback. The stock markets tend to have an intrinsic value that's easier to gauge," said Pankaj Mathpal, a financial advisor. "The crypto market is starkly different, and the usual assumptions don't apply here."