• This week Max Freccia from Truvius shares his perspectives on active vs. passive management and how these different investment models can be applied to cryptocurrency investing.
• Many crypto investing tools have been launched, including SMA platforms, portfolio tools and ETFs.
• As advisors, you need to support clients’ evolving interest in this asset class while considering the implications of various approaches for your business.
Exploring Active and Passive Management for Crypto
Cryptocurrency investing has produced many tools that can help investors find success in the space, such as SMA platforms, portfolio tools, and ETFs. However, one of the key dilemmas is deciding between active and passive management strategies when it comes to crypto investments. To break down this question, we will examine three different ways of looking at the issue: Simple buy-and-hold strategies; Automated indices; and Discretionary management.
Simple Buy-and-Hold Strategies
One of the simplest methods for cryptocurrency investing is a straightforward buy-and-hold strategy – purchasing coins or tokens with the expectation that their value will increase over time due to market forces such as supply/demand dynamics or technological advancement. This type of approach requires very little maintenance once coins are purchased as there is no need to actively manage them on an ongoing basis. Furthermore, since transaction fees associated with buying and selling cryptocurrencies tend to be quite high (especially compared to those associated with traditional securities), this may make buy-and-hold strategies attractive due to their low cost relative to other approaches.
Another way to approach cryptocurrency investments is through automated indexing strategies which involve tracking established indices such as the Bloomberg Galaxy Crypto Index (BGCI) or MVIS CryptoCompare Digital Assets 10 Index (MVDA10). These indices are composed of a basket of digital assets which are weighted according their market capitalization or other criteria defined by each individual index provider. By holding a diversified basket of digital assets instead of picking individual tokens or coins, investors can reduce risk while still gaining exposure to broad sector trends within the industry without needing any specialized knowledge about markets themselves.
The most active form of cryptocurrency investing involves discretionary management where decisions about what assets should be bought/sold are made by qualified professionals based on research into specific markets/tokens/coins and technical analysis techniques such as chart reading or quantitative models which use historical data points in order identify potential trading opportunities within given markets. Although this approach may yield higher returns than simpler buy-and-hold strategies or automated indexing approaches over long periods time due its ability take advantage short term price movements, it also carries higher costs due increased levels research required maintain proficiency within highly volatile digital asset markets such Bitcoin & Ethereum networks which could potentially offset any gains made by more knowledgeable traders over less experienced ones who rely purely upon luck rather than skill when attempting capitalize upon short term movements within these types complex digital ecosystems .
Questions Spurred by BlackRock’s ETF Application
The recent news that BlackRock has submitted an application for an Exchange Traded Fund (ETF) tied exclusively Bitcoin prompted several questions amongst financial advisors seeking clarity on what types products might become available in near future if approved by regulators: Will these new products provide exposure only cryptocurrencies? Will they offer leverage similar existing leveraged ETFs found US stock market? How will risks associated owning cryptocurrencies be managed? What kind disclosure requirements apply these types funds? Answers all these questions remain unclear , however one thing certain – increased attention from large financial institutions like BlackRock implies growing momentum behind institutional adoption decentralized ledger technologies & subsequent impact upon global economy .
As advisors consider how they want include crypto in their practice , it important understand differences between active & passive management styles order determine which best fits needs clients . With increasing demand from retail investors , understanding nuances crypto investment world vital ensure successful outcomes both personal & business level .