• This week, Max Freccia from Truvius shares his perspectives on active vs. passive management when investing in cryptocurrency.
• He covers simple buy-and-hold strategies, automated indices and discretionary management and the pros and cons of each of those.
• With tools emerging for advisors, they can determine how to include this asset class alongside their traditional investment business.
Active vs Passive Management in Crypto Investing
The crypto space has seen an emergence of tools for investors, including SMA platforms, portfolio tools and ETFs. These have helped to define active and passive management – well-defined in TradFi – which can be applied to cryptocurrency investing.
Buy-and-Hold Strategies
One way to approach investing in cryptocurrencies is through a buy-and-hold strategy, where an investor buys coins or tokens with the intention of holding them for a long period of time without actively trading them. This allows investors to benefit from any potential increase in value over time as well as taking advantage of any dividend payments or other benefits offered by certain projects.
Automated Indices
Another method for managing crypto investments is through automated indices such as those offered by CoinDesk Indexes (CDI). These indices offer a diversified portfolio that automatically rebalances based on changes in the index components and are designed to provide investors with exposure to a range of different digital assets while helping to reduce risk associated with single coin investments.
Discretionary Management
Discretionary management involves making decisions about when to buy or sell digital assets based on market conditions and fundamental analysis conducted by experienced traders or advisors. This type of trading requires more skill than buy-and-hold strategies but can potentially yield higher returns if done correctly. Additionally, it offers more control over the selection process than an automated index fund would allow for since trades are made manually instead of relying on programmed logic rules.
Questions spurred by the BlackRock ETF application
The recent news that BlackRock has applied for an ETF approval has raised questions about what this means for the industry going forward: Will there be additional regulatory requirements? What implications will this have on existing funds? How will this affect investor demand? All these questions remain open at present but it’s clear that there is increased interest from institutional investors who may be looking at ways to access digital asset markets via regulated products like ETFs going forward