Crypto asset management: pros and cons
The asset management services are provided by companies and traders who have "years of experience" in the market. Asset managers may increase the investor's capital for a certain percentage of the profit, leaving everyone happy. But is it really true?
Classical asset management is usually carried out by reputable financial companies or investment funds with impeccable reputations, years of successful experience, and all necessary licenses from regulators of countries (preferably G7). All terms of cooperation, trading strategies, asset classes and list, profit and loss distribution, risks, and liability zones are carefully outlined in contracts between these companies and investors.
In the case of crypto asset management, the situation is fundamentally different. As a result of the lack of legislation and regulation in the market, such services are usually offered by little-known hedge funds with a "fresh" Cayman Islands registration, or by self-made "successful" traders. According to legend, these traders have traded on exchanges for more than 20 years (some have even done so since childhood), and they started their careers in funds and forex trading. Some of them even have awards and regalia, like "Most Profitable Trader" or "Best Portfolio Asset Manager," issued by organizations with loud names but obscure backgrounds.
Unfortunately, in both cases, the chances of permanently losing your hard-earned crypto are very high. Practically all "successful" traders who offer asset management services are either scammers or novices. Those are mostly shysters who artificially create an image of successful and experienced traders through posting staged photos in Dubai (low-cost tours for a few days) or behind the wheel of luxurious Lamborghinis (rented for one hour), to attract gullible investors to fund their schemes.
Hedge funds operate similarly, relying on a license from a corrupt offshore jurisdiction or "famous" founders on their team. Some of these funds may initially be sincerely focused on constructive and fruitful cooperation. However, if the amount of investments raised becomes substantial, an exit scam may become inevitable.
When considering an offer for asset management, investors should ask themselves the following questions:
- If a trader is truly successful and has been trading for many years with numerous accolades, why hasn't he or she built up their own capital instead of seeking additional income through asset management?
- What is the purpose of a trader seeking additional assets through trust management in an open market for which they must be accountable? If a trader is not satisfied with trading volumes, many cryptocurrency exchanges offer margin trading with leverage up to 100X, where one can use free resources for a much lower percentage than what is offered in trust management ads.
The answer here is simple: during leverage trading, the trader covers losses with their own capital, and the exchange does not provide the opportunity to risk borrowed resources, timely canceling losing trades and liquidating the borrower's deposit. In the case of trust management, the trader receives a much more advantageous offer: the profit is shared between them and the investor, while the losses fall entirely on the asset owner's shoulders.
Fraudulent asset management has different forms
Coin transfer to a "successful" trader's wallet. Such offers are widespread on various Telegram channels related to cryptocurrencies or on forums such as MMGP and Bitcointalk. Many of these topics have long been abandoned by their owners, and only a few deceived crypto investors continue to wonder "where did the trading guru disappear to?"
Even if funds are raised from a well-established account with a long history, investors are likely to lose money since scammers often purchase promoted accounts for their own use. Almost any account, even the most popular ones, can be bought on bitcointalk. Similarly, Telegram channels with a large audience and a long history can simply change ownership for a decent remuneration without being noticed.
"Institutional" investor. A representative of a hedge fund that offers managed account services also suggests transferring coins to the company's wallet. Typically, it all ends in tragedy, with the "fund" revealing itself to be a standard pyramid scheme. Such companies search for gullible investors through forums, paid targeted advertising, or operate through their website, where each user has a personal account. The picture looks good, but the results will be disappointing.
Using APIs for trading: The best method, but it is not foolproof!
The most effective option is to have a trader or fund in charge of managing your assets using the exchange's API. This technique allows the owner of the assets to keep their funds in their own wallets while the trader would still conduct his business without the ability to withdraw the holder's crypto. However, even though this method has its advantages, there are still certain drawbacks that we will cover in future articles.
To transfer your cryptocurrency to a PAMM via API, you must create an API key on any exchange.
The main access rights for AM should only allow the opening and closing of trades (placing and canceling orders). It is critical to ensure that the "Withdrawal" option is deactivated. This function gives anyone working through the API the right to withdraw cryptocurrency from your wallet.
In case the trader turns out to be problematic or does not deliver on their promises, you can always revoke their access to your account on the exchange. You can also delete the API key completely.
Benefits and drawbacks of asset management services
Drawbacks:
- The lack of a legislative framework results in a situation where even with an official contract, investors have no guarantees for capital preservation;
- There is no regulation or oversight of traders and funds offering managed accounts services;
- It is impossible to verify the knowledge and trading experience of a crypto trader providing managed account services. The majority of traders offering such services are scammers with fake reviews and statistics;
- There have been a number of fraudulent schemes associated with AM. For example, a trader may take on the accounts of two individuals and open a selling position using one person's funds and a buying position using the other’s possessions. One of these positions is guaranteed to be profitable, and the trader will receive their reward from the account owner with the winning position. The other client will lose their funds;
- There are numerous crypto funds that "suck up" investments for supposedly further trading on the markets and profit-making, but they turn out to be "flash-in-the-pan" entities, and their trading is just a fable;
- The trader is always exposed to the risk of being unremunerated.
Benefits:
- It is possible to increase one's deposit without knowledge of trading fundamentals, technical analysis, indicators, forecasts, patterns, etc.
- Scammers that are waiting to accept your cryptocurrency in their own wallet and run away with your money are sifted out by using an API connection that restricts withdrawals.
In conclusion
Whether or not to work with companies and traders that offer crypto asset management is a personal decision. We have only highlighted the risks, benefits, and drawbacks of this collaboration in the face of harsh realities, where cryptocurrencies continue to exist in a gray area, balancing between prohibition and legalization in most countries. Forewarned is forearmed!
