This article will delve into the operating model, regulatory environment and tax policies of private crypto funds to provide investors with comprehensive guidance. This article is derived from an article written by WolfDAO&TaxDAO. (Preliminary summary: Web3 private equity investment sentiment has dropped to freezing point, where will the encryption market go?) (Background supplement: Black Swan Fund warns: U.S. stocks, cryptocurrency, and gold will "flash crash before the end of the year." Market changes are coming?) As more and more The more traditional financial institutions and even non-financial institutions begin to carry out private crypto fund business and allocate crypto-related assets, the more important it becomes to operate private crypto funds in compliance with regulations. This article will summarize the types and characteristics of crypto funds with different strategic attributes, transaction methods, and funding sources, as well as the macro-view supervision of private crypto funds. It will also introduce the operation process of private crypto fund business and the compliance fund operation cases. Regulate the key elements of operating a private crypto fund. 1. Definition and classification of private crypto funds 1.1 What is a private crypto fund 1.1.1 Definition and characteristics of private crypto funds A fund in a broad sense refers to a certain amount of funds established for a certain purpose. It mainly includes trust investment funds, provident funds, insurance funds, retirement funds, various foundation funds, etc. The common feature is that specialized managers (Asset Managers) centrally manage investments, thereby creating higher investment returns. These funds can be invested in the primary market (venture capital, private equity) and the secondary market. Private Crypto Fund (Private Crypto Fund) is a non-publicly issued investment fund. It is mainly aimed at institutional and individual investors with certain wealth and risk tolerance. It focuses on investing in crypto assets and related projects. The scope of holdings may include crypto assets. , crypto options futures, crypto company stocks, RWA assets, etc. The fund combines the characteristics of private equity funds and the uniqueness of crypto assets. Its characteristics that distinguish it from other private equity funds can be summarized as follows: Specific investment scope: Private crypto funds focus on the crypto asset market, including digital currency, blockchain projects, and decentralization. Financial (DeFi) applications, etc. High value fluctuations: The value of cryptoassets fluctuates far more than traditional financial assets.Valuations for unsecured crypto-assets, such as most digital currencies, are largely based on speculative demand, and therefore prices are highly volatile. This high volatility not only brings potential high-yield opportunities to investors, but also increases investment risks. The regulatory attitudes of different countries vary greatly: There are significant differences in the regulatory attitudes of different countries towards crypto-assets. For example, the United States has vague and ever-changing regulatory policies on cryptocurrencies, while Japan legalized and regulated Bitcoin earlier. Private crypto fund managers need to pay close attention to changes in regulatory policies in various countries to adjust investment strategies and reduce compliance risks. Low transparency: Private equity funds themselves have low transparency, and this opacity is further exacerbated by the anonymity and decentralized nature of crypto asset markets. Therefore, private crypto funds need to establish a sound information disclosure system and investor protection mechanism. 1.1.2 The difference between private crypto funds and traditional private equity funds Private crypto funds and ordinary private equity funds are similar in many aspects, but there are some key differences due to their different investment targets and market environments. (1) Investment targets Private crypto funds: Focus on cryptocurrency, blockchain technology and related digital assets. They may invest directly in cryptocurrencies (such as Bitcoin, Ethereum), or they may invest in blockchain startups, tokenized assets, and other projects related to the blockchain ecosystem. General private equity funds: typically invest in assets in traditional financial markets, such as stocks, bonds, real estate, private company equities, or other traditional asset classes. The investment targets of ordinary private equity funds are more diverse, but they are all based on the traditional economic system. (2) Risks and Volatility Private Crypto Funds: The cryptocurrency market is extremely volatile and faces greater risks, including market fluctuations, technical risks (such as hacker attacks), and regulatory risks (different countries have greatly different regulatory attitudes towards them) and policies may continue to change), and liquidity risks (some tokens or crypto-assets may be difficult to liquidate quickly). General private equity funds: Although they are still exposed to market fluctuations, changes in the economic environment and industry-specific risks, these risks are generally more controllable and have rich historical data.The investment targets of ordinary private equity funds usually have longer market histories and clearer regulatory frameworks. (3) Regulatory environment Private crypto funds: Limited by the regulatory environment of the cryptocurrency market, they may face more uncertainties. Countries have different regulatory policies on cryptocurrencies and related assets, which may affect the fund's operations and investment strategies. Ordinary private equity funds: generally subject to strict financial supervision and laws and regulations, with clear compliance requirements. The investment target is usually in a more mature and regulated market. (4) Investor Type Private Crypto Funds: Usually attract investors who have a deep interest in cryptocurrency and blockchain technology. These investors may be more willing to accept the opportunities brought by high volatility and innovative technology. Ordinary private equity funds: The investor base is broader, usually including high-net-worth individuals seeking relatively stable returns, institutional investors, pension funds, endowment funds, etc. (5) Technology dependence Private crypto funds: Strong dependence on technology, requiring the management team to have the understanding and application capabilities of front-end technologies such as blockchain technology, smart contracts, and decentralized finance (DeFi). Ordinary private equity funds: rely more on traditional financial analysis, market research and portfolio management skills, and are relatively less dependent on technology. (6) Liquid private crypto funds: The liquidity of the cryptocurrency market can be very high, but it may also lead to liquidity risks due to insufficient market depth or the nature of specific assets, especially when the market fluctuates violently. will be significantly improved. Ordinary private equity funds: The investment targets generally have relatively certain liquidity arrangements, although they may still face liquidity constraints, especially when investing in long-term assets such as private enterprises or real estate. These differences indicate that although the two funds are similar in structure, there are significant differences in investment objectives, risk tolerance, regulatory environment and market technology requirements. 1.2 Classification of Private Crypto Funds As investment funds focusing on the crypto asset market, private crypto funds can be divided according to different classification standards. The following are some common ways to classify private crypto funds based on investment objectives, operation methods, etc.: (1) Direct investment funds classified by investment objectives: This type of fund mainly directly invests in cryptocurrency, blockchain projects or NFT (non-profit funds). Fungible tokens), etc.They buy and hold these assets in the hope of making a profit when their value rises. Indirect investment funds: Indirect investment funds may indirectly participate in the crypto asset market by investing in corporate equities, fund shares or derivatives related to crypto assets. For example, invest in equity in a cryptocurrency exchange, a blockchain technology company, or a crypto-asset mining business. (2) Classification by operation mode Closed-end funds: Closed-end funds determine the size of the fund when they are established and will no longer accept new investments within a certain period of time. Such funds usually have a fixed duration and are liquidated or transformed upon maturity. Among private crypto funds, closed-end funds can ensure that fund managers have a stable capital scale for a period of time, which is conducive to their long-term investment layout. Open-end funds: Open-end funds allow investors to subscribe or redeem fund shares at any time during the fund's duration. This type of fund usually has good flexibility and can adjust according to the market...