Defining Active and Passive Crypto Management: 3 Ways to Invest
• This article discusses the importance of setting boundaries when it comes to crypto investing, breaking down 3 different approaches: simple buy-and-hold strategies, automated indices, and discretionary management.
• It provides an overview of pros and cons associated with each approach and references a study by Yale Economist Aleh Tsyvinski suggesting that investors should consider allocating 6% of their portfolio to digital assets.
• Finally, it mentions the recent rise in price of Bitcoin (forecasted to reach $120,000 by 2024) as a potential catalyst for further conversations about crypto investments.
Setting Boundaries: Defining Active and Passive Management for Crypto
Three Approaches to Crypto Investing
Crypto investing presents advisors with a unique challenge: How can they set boundaries between active and passive management? In this article we will explore three distinct approaches – simple buy-and-hold strategies, automated indices, and discretionary management – and assess their advantages and disadvantages.
Simple Buy-and-Hold Strategies
The most basic strategy is simply buying digital assets such as Bitcoin or Ethereum and holding them over time without actively managing them. This approach is low maintenance but leaves investors exposed to market volatility since there’s no one actively monitoring or adjusting the portfolio to take advantage of changing conditions.
Another option is using an automated index tracking system which follows predetermined rules and rebalances portfolios regularly according to preprogrammed criteria such as asset class weightings or risk levels. While this method may be less volatile due to its mechanized nature, investors may miss out on higher returns if they don’t adjust the index frequently enough or choose appropriate tracking parameters.
Finally, there’s discretionary management which involves actively trading crypto assets based on realtime market conditions. This approach requires more expertise but has the potential for higher returns than other methods since experienced traders can take advantage of short term opportunities while still adhering to longer term investment goals. However it also carries more risk since there’s no guarantee that trades will be successful.