The launch comes as bitcoin's price continues to climb to record highs.

Qualified investors can now buy into what is supposedly the first blockchain and crypto-currency fund of funds, representing a further twist in developments around this technology.

Block Asset Management’s open-ended fund will invest in a portfolio of investment funds that tap the blockchain and crypto-currency space, applying a range of strategies with combined assets under management exceeding $500 million, the firm said in a statement. 

“After a year of global market research, we realised that interest in the blockchain/crypto space is extremely high,” said Kevin Ballard, founder and director of US-headquartered Block Asset Management. “However, feedback from professional and institutional investors is that whilst they acknowledge their understanding of this sector is fairly limited, they do recognise it can generate high returns - albeit in a high-risk environment.”

Ballard said investors have been “hesitant” to invest in the nascent sector due to difficulties selecting a single strategy or fund manager. This issue is “compounded by a lack of funds that offer diversification or any material performance history,” he said. 

A fund of funds is an investment strategy in which a fund invests in other types of funds. This strategy invests in a suite of different portfolios to spread risks instead of investing directly in bonds, stocks and other types of securities. Typically, a fee is charged both for the overall fund and the sub-funds.

Block Asset Management’s fund offers investors exposure to what it calls a “dynamic” asset class through a five-prong investment approach: exposure to index-tracking, mining, lending and initial coin offering (ICO) funds. The firm’s team includes Timothy Enneking, who has been managing crypto assets since 2013. 

The launch of the Luxembourg-domiciled fund comes as the price of bitcoin, the first crypto-currency, continues to climb to new highs. Yesterday, it broke the $8,000 barrier for the first time and was trading at around $8,160 at the time of writing (14:05 GMT, 20/11/17). Year-to-date, its value has rocketed more than 700 per cent, outperforming any other asset class. In total, there are more than 1,200 crypto-currencies with a current market cap of around $243 billion, with bitcoin accounting for some 56 per cent of this figure.  

But this year, crypto-currencies have been met with fierce regulatory scrutiny. 

Because they are decentralised, crypto-currencies are not issued or backed by a central bank or government, meaning they can be used to circumvent banks’ services to transfer holdings without any input from a bank or third party. Earlier this year, China, for example, clamped down on crypto-currencies, banning all platforms that enable people to buy and sell digital coins. Several regulators globally, including those in the UK, US, Hong Kong and Australia, have fired warnings in recent months about the risks tied to crypto-currency investments. 

ICOs
Many firms are even using crypto-currencies to sidestep Wall Street’s services through ICOs, aka initial coin offerings. A meld of crowdfunding and an initial public offering (IPO), the controversial fundraisers involve the sale of digital tokens by blockchain start-ups looking to grow their business. But unlike a traditional IPO in which investors get shares, investors in ICOs are instead rewarded with mini crypto-currencies, the value of which is directly tied to the business' performance. This means the digital coins grow in value only if the start-up's operation or network proves viable, attracting more investors and driving up liquidity.

However, ICOs have drawn regulatory scrutiny, with warnings having been fired over mass phishing scams leaving one-in-10 investors penniless. The UK’s Financial Conduct Authority described them as “very high-risk, speculative investments” and said it may eventually move to regulate them. 

Although a crypto business may be handling millions of dollars, they may find themselves up against it when it comes to finding somewhere to store it.  

Several companies operating in the space have cited difficulties getting a bank account because of the potential fallout from money laundering scandals and crypto-currencies’ association with crime. Shunned by traditional banks, many are forced to bank in offshore jurisdictions, in turn diminishing trust in the sector. 

Betting big on blockchain
Crypto-currency transactions are underpinned by varying forms of blockchain technology. A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. No changes can be made to a blockchain without the knowledge of every participant.  

While big banks have mostly steered clear of bitcoin and other crypto-currencies, many are betting big on blockchain technology. The sector will be worth just under $340 million by the end of this year, according to research house Statista, and is forecasted to grow to $2.3 billion by 2021. Technology behemoth IBM has said that blockchain will be used by 15 per cent of banks by the end of this year.

Still, bitcoin’s price swings have even lured the likes of hedge funds, of which there are now estimated to be more than 120 focused solely on bitcoin, according to financial research house Autonomous Next. Goldman Sachs is reportedly weighing a crypto-currency trading unit and CME Group, the US exchange operator, plans to launch bitcoin futures contracts this quarter, potentially bringing crypto-currencies to Wall Street.

But Jamie Dimon, chief executive of Goldman’s neighbour JP Morgan, has said bitcoin is a “fraud” that will “likely blow up”. Earlier this month, Tidjane Thiam, CEO of Swiss banking giant Credit Suisse, said bitcoin “presents a number of challenges” and suggested most banks have “little or no appetite to get involved in a currency which has such anti-money laundering challenges”.