There are many financial options available to those who know how to utilize them. Many people spend their entire lives working in industries such as stock trading and hedge fund investments. Since the internet first entered our lives, a new type of currency has been on the rise, cryptocurrency. There have been and continues to be several variations of cryptocurrencies, but there is one that has received far more attention than any of the others. This one cryptocurrency that stands above all of the rest is Bitcoin. Ever since it was first presented to the public, Bitcoin continues to be popular and more efficient than others before it. It has come to the point now, where Bitcoin has entered into many facets of daily finances including hedge funds. Hedge funds are utilized by individuals as well as businesses as a way to create a virtually passive income. When someone invests in a hedge fund, they do not have to do much else besides providing the money for their investment. If and when the hedge fund comes to fruition, each investor takes a part of the profits without ever having to do anything more than present their share of the investment money. Here, you will find information about how hedge funds work, how Bitcoin works, and how these two things work together as a Bitcoin Hedge Fund.

First, let's talk about what a hedge fund is and how it works. A hedge fund is comprised of a funds manager and investors. The investors each provide a specified amount of money into the fund and the funds' manager then uses the money for specific investments in various things in an attempt to gain a profit. unlike general trading and stock investment, hedge funds are not limited to investing in certain things such as stocks. The funds entered into a hedge fund can then be invested into basically anything. This includes stocks but is not limited there. Other possibilities include real estate, land, and currencies.

In this case, the object of investment is a currency of which there are many possibilities. There are still multiple options within the world of cryptocurrencies, but here we will be narrowing it down specifically to Bitcoin.

Hedge funds only allow accredited or "qualified" investors to take part. This means that each investor must meet a specific net worth requirement. The general requirement is each investor must have a net worth over $1 million or have an annual income that exceeds $200,000 for at least the previous two years. As for the net worth requirement, this cannot include the investor's primary residence. If these requirements are met, an investor to take part in the hedge fund. These requirements are put in place to protect the investors. It may seem to be ridiculously exclusive, but this is for the best. The purpose of this rule is a means of protection in the event that the hedge fund ends up losing money. By ensuring that the potential investor will not lose everything if the hedge fund does not make money, it provides not only protection but comfort as well. Many people do not take the risks into consideration for wanting to jump into certain situations including investments. This is why hedge funds require monetary qualifications.

Now, let's talk about Bitcoin. Like any currency, Bitcoin can be used to purchase goods and services so long as the proprietor accepts this form of currency. Compare this to a small country store not having the ability to accept credit or debit cards. In this same way, not all stores and businesses accept cryptocurrencies including Bitcoin. One of the most popular uses for Bitcoin is buying and selling amongst individuals which are partially where Bitcoin hedge funds come into the scenario. The purpose of this is for one person to purchase Bitcoins for a low amount and then resale those same Bitcoins for a profit. Bitcoin, as well as several other cryptocurrencies, operate on a peer to peer network and every person within this network knows every time a change is made. This includes when a specified amount of Bitcoin is bought and/or sold.

The best way to understand Bitcoin is to relate it to something else. Here, we are going to compare it to poker chips and arcade tokens. Both of these examples work in the same basic way. In poker, you trade a specified amount of local currency for the equivalent in poker chips. If the player loses, they do not get back the money they traded for the chips; however, if the player wins, they receive the amount equivalent of how much they have in poker chips in the local currency. In an arcade, gamers trade local currency for tokens that they then use to play the games within the arcade. While they will not be able to receive cash after using their tokens, the general rule is the games produce tickets that can be redeemed for certain items. Bitcoin can be thought of in the way, you trade a specific amount of your local currency for a specific amount of Bitcoins. Then, your goal is to wait for its value to increase and make a profit of the Bitcoins that are in your possession.

Finally, consider how these two things work together. A hedge fund can be set up specifically to invest in Bitcoin since the investment options are so varied, many funds managers choose something specific for their hedge fund while they are setting it up. By deciding beforehand what to invest in, it gives the investors the chance to determine if they are interested in that particular fund or not. All hedge funds have a minimum investment amount which can vary from one hedge fund to the next. A common amount is $50,000 per investor. If a funds manager decides that they want to go for a bigger profit, they have the option of borrowing money from other sources to increase the amount being invested into, in this case, Bitcoin. If the funds' manager makes the right choices, this has the potential to provide an incredibly large payout for the investors as well as the manager. If, however, the manager does not bring a profit, borrowing extra money brings with it a whole new set of risks. Any hedge fund can potentially be a years-long investment and this is particularly true of Bitcoin hedge funds. It can take years for price fluctuations to hit Bitcoin, but if you are patient, it often brings great rewards.

Author's Bio: 

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