Cryptocurrency Asset Management via Global Funds and Trusts

In the cryptocurrency sector, trusts and funds grant investors market access and exposure to a diverse range of digital assets with no need for direct ownership. These instruments are founded on the principles of diversification and professional management, with managing entities striving to balance risk minimization against the maximization of client returns.

Below, Q Wealth experts will analyze different market access methods that crypto funds and trusts offer, highlighting the unique advantages of each. We will also examine the associated legal complexities and outline jurisdictions conducive to establishing these financial structures.

Trusts and funds in the cryptocurrency domain

In their capacity of direct investment channels, crypto funds provide entry into the digital asset space, covering a spectrum from tokens to ICOs and other digital financial tools. Crypto trusts, in contrast, are geared towards niche segments and are characterized by their sophisticated management systems.

For a fund or trust to succeed, you should focus on legal compliance, craft a strong investment strategy, and manage risks effectively. Economic flexibility is vital due to the ever-changing technology and laws in the cryptocurrency sector, requiring regular strategy updates.

In the business world, trust is fundamental to fund creation. Investors need clear management practices and a compensation structure that matches their financial goals.

While the pace of growth for crypto funds and trusts has decelerated since the peak years of 2017 and 2018, the environment for their development remains positive. The current slowdown doesn’t reflect a scarcity of chances but rather underscores the need for a more deliberate and strategic method moving forward.

Crypto funds: their forms and features

The market offers a variety of cryptocurrency funds, each designed to meet the varied expectations of investors.

Closed-end funds

These investment vehicles concentrate on purchasing tokens before the latter are offered to the public or listed on any exchange. In such funds, investors agree to freeze their capital for up to 7 years, expecting to profit from the venture’s growth.

Open-end funds

These funds allow investors to contribute or withdraw funds daily. Participants can track the fund’s net asset value, opt in for subscriptions, and obtain profit distributions when desired.

Fund of funds

A fund of funds comes with a unique way of investing. It doesn’t buy stocks or bonds directly. Instead, it picks the best parts from other investment funds’ portfolios. The goal is to make money for investors while keeping risk low.

High-frequency trading funds

The above funds capitalize on market inefficiencies and early indicators of short-term price fluctuations. The growth of this trading style is attributed to the emergence of advanced computers that can handle thousands of transactions per second.

DeFi and NFT funds

These funds are channeling investments into cutting-edge DeFi tools and NFTs, both of which are rising in popularity.

While some funds focus on prominent cryptocurrencies like Bitcoin or Ethereum to concentrate capital and amplify potential gains, others opt for a diversified approach. They spread investments across different cryptocurrency market segments, from NFTs and gaming to artificial intelligence, aiming for reduced risk and more consistent returns. There are also funds that explore alternative crypto assets, investing in shares of other crypto funds, ETNs, and trusts like the Grayscale GBTC fund.

Cryptocurrency trusts

Several persuasive reasons support the establishment of a trust:

• It comes with regulated fund access for beneficiaries, including those with limited legal capacity.
• It offers a means to lessen the tax impact on asset transfers and inheritances.
• It may be used as a strategy for safeguarding family wealth.

Trusts offer strong protection for assets, shielding them from social and political upheaval or claims from past beneficiaries and creditors. At the same time, they guarantee a high degree of privacy and safety.

When it comes to trusts that deal with cryptocurrencies, there are a few main types:

• Trusts for crypto storage.
• Investment trusts that look after a mix of investments to make maximum profits for their members.
• Decentralized trusts, which use blockchain technology to guarantee operational transparency and security.

If you want to set up a trust in Nevis to protect your assets, the team at Q Wealth is here to help you out.

Choosing the right jurisdiction for your crypto fund

Choosing the right place to set up a crypto fund is a tricky matter. You need to think about taxes, industry regulations, infrastructure, and whether financial services are available. Luckily, some European countries offer top conditions for crypto companies.

Luxembourg

Recognized for its advanced financial sector, comprehensive legal system you can trust, and solid investor safeguards, the jurisdiction comes with the Reserved Alternative Investment Fund (RAIF), a favored investment structure for crypto funds.

Malta

In Malta, a regulatory framework specifically designed for crypto businesses, known as the ISA, has been put in place, along with a tax system that benefits such enterprises. Since 2018, crypto funds have been operating under legislation that promotes effective collective investment schemes. To run a fund in Malta, you will have to obtain a license from the Malta Financial Services Authority (MFSA).

Czech Republic

To set up a crypto fund in the Czech Republic, you must obtain the Central Bank (ČNB) and other relevant authorities’ approval. The establishment process may take from 3 to 6 months. The starting cost for registration is typically EUR 25,000, with an annual maintenance fee of EUR 3,500. Both may vary based on specific circumstances.

Switzerland

The nation provides a supportive setting for crypto enterprises, overseen by the Financial Market Supervisory Authority (FINMA). With its strict data protection laws and dependable financial system, Switzerland is a sought-after location for crypto funds.

Liechtenstein

Liechtenstein is known for its advanced legal structure and adaptable licensing methods for crypto funds. The country encourages blockchain laws, which make it an appealing place for crypto-related operations.

Lithuania

Lithuania’s central bank has updated its policy on virtual assets. It now permits the conversion of crypto payments into the local currency through external platforms. This approach paves the way for the creation of cryptocurrency investment funds, providing investors with additional options to diversify and manage their portfolios.

Success with choosing the appropriate jurisdiction for a company depends on its unique requirements and strategic goals, alongside adherence to regulatory requirements and consideration of related risks.

The key benefits of setting up crypto funds in European countries are manifold:

• Efficient Regulatory Framework: EU jurisdictions have detailed laws and regulations that oversee cryptocurrency dealings and crypto fund operations.
• Strong Investment Support: There is support from both big institutions and individual investors, which helps these funds grow and expand.
• Strategic Location: These states are close to major tech and financial hubs around the world, which helps form important partnerships.
• Reputational Benefits: Funds gain more trust and credibility when based in countries with efficient regulation.

Where should I set up a trust?

Try going offshore. Setting up a crypto trust in an offshore jurisdiction comes with multiple benefits that merit attention.

Nevis

Nevis offers high privacy and security for cryptocurrency assets, supported by a solid legal framework for managing and distributing funds. Crypto trusts in Nevis are attractive for those willing to diversify their portfolios and shield digital assets from legal and tax issues. 

A trust set up in Nevis may be used instead of a will. It facilitates the transfer of assets to beneficiaries. With a Nevis trust, the process is discrete and requires no complicated legal procedures.

Northern Cyprus

In Northern Cyprus, a trust company boasts several advantages for investors. With it, you can ensure privacy, protect your assets, optimize taxes, and facilitate efficient financial planning. The jurisdiction is adaptable to individual requirements, which guarantees proficient asset management and financial stability.

Malta

A trust in Malta is useful for asset management and financial protection. Founders can use this structure for various purposes:

• inheritance planning with added benefits and protection
• capital management during the founder’s lifetime and afterward
• creating special funds to support heirs or charitable causes
• tax optimization and risk mitigation.

Malta’s appealing laws and trust regulations heighten its appeal to global investors.

British Virgin Islands

As a jurisdiction, the British Virgin Islands (BVI) is well-suited for setting up Private Trust Companies (PTCs). Founders must secure a top-tier trust license for the registered agent and follow specific naming rules that reflect the company’s function. A PTC’s primary role in the BVI is to serve as a trustee for a trust or a set of interconnected trusts. The required statutory capital for the company may be pretty modest, with an upper limit of USD 50,000.

Getting ready to set up a crypto fund: your first steps

The market for crypto funds is on the rise, with projections suggesting it could reach USD 3 or 4 billion in the next 5 to 7 years. To take advantage of these opportunities in a competitive market, crypto funds should craft strong strategies. Founders are advised to build distinct benefits for their funds to boost investor gains. Here are several key recommendations from Q Wealth on the matter:

1. Form a group of experts with deep crypto connections and analysts capable of pinpointing and investing in a broad spectrum of early assets, like unique network tokens.
2. Set up a solid security framework to defend crypto assets against losses, using technologies like non-custodial storage.
3. Apply algorithmic or high-frequency trading methods.
4. Look into fast-growing crypto asset areas, e.g., gaming, AI, and unique algorithmic platform tokens.
5. Use structures like a fund of funds that trade in various strategies to stay stable in market lows and diversify your asset portfolio.

Keep in mind that careful planning and well-thought-out action are vital for those about to launch a thriving crypto fund that draws investors.

Documents necessary to establish a crypto fund

To register a cryptocurrency fund, the founder is required to prepare a set of documents that align with the jurisdiction’s legal requirements and the company’s structure. This is what the necessary documents generally comprise:

• Memorandum: A document detailing the fund’s structure, location, investment goals, and potential risks.
• Articles of Association or Partnership Agreement: These are selected based on the company’s legal form.
• Management Agreement: An agreement that specifies the powers and duties of the managing director, necessary when a third party manages the fund.
• Investment Management Agreement: A document that describes the investment manager’s roles and compensation and governs the relationship between the fund and its stakeholders.

You can also add a few extra agreements to help things run smoothly:

• investment advisory agreement
• administration agreement
• subscription agreement
• depositary agreement
• custodial agreement.

Creating a crypto fund: procedure to follow

Crypto fund setup is a multistage process. Take a look at the typical steps to take:

1. Identify the right jurisdiction, prepare all the needed documents, and apply to set up a legal entity.
2. Get the necessary license to run the crypto fund. This important step requires you to follow specific rules and pass checks by the regulatory body.
3. Put together all the documents required to make sure the fund will operate within the law and follow all regulations.

For a crypto fund to be registered and launched without a hitch, you should be prepared to engage in detailed planning, foster collaboration, and ensure regulatory compliance throughout the process. To reduce the likelihood of errors and boost the procedure’s efficiency, you are welcome to get help from consultants and legal advisors who are well-versed in the industry.