Alternative Investment Funds investing in Cryptocurrencies

Alternative Investment Funds (“AIFs”) are established with the purpose to raise capital through non-traditional investment products which generally do not fall under the category of mainstream investments. In this respect, certain AIFs have also started seeking investments in cryptocurrencies due to the substantial growth of these products in recent years.

In order to address some of the industry’s queries, the European Securities and Markets Authority (“ESMA”) issued an update in its Questions and Answers (“Q&As”) specifically dealing with AIFs investing in crypto-assets. ESMA’s approach being that it is important to assess these scenarios on a case-by-case basis whether or not the relevant AIF, managed by an Alternative Investment Fund Manager (“AIFM”) meets the definition of an AIF as defined in article 4(1)(a) of the Alternative Investment Fund Manager Directive (“AIFMD”).

ESMA’s Q&As further state that should an AIF fall under the definition provided in the AIFMD, the directive does not provide for a list of eligible or non-eligible assets. This means that AIFs may in principle invest in any traditional or alternative assets as long as the AIFM can ensure compliance with the AIFMD. Nonetheless, ESMA reminds the industry of the possible limitations on AIFs investing in crypto-assets which might exist at national level and of the high risks involved in investing in such crypto-assets.

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