Crypto Investing: Setting Boundaries Between Active & Passive Management

• This article discusses the concept of active and passive management for cryptocurrency investments, and how different investment models can be used.
• It examines simple buy-and-hold strategies, automated indices, discretionary management and their respective pros and cons.
• The article also covers the emergence of crypto investing tools like SMA platforms, portfolio tools, ETFs, and questions spurred by the BlackRock ETF application.

Understanding Active vs Passive Management

Investing in cryptocurrencies has never been easier as more tools become available to investors. One of the key dilemmas is deciding between active or passive management when it comes to crypto investing. Active management involves making decisions on which asset to buy or sell whereas passive management follows predetermined criteria such as a market index or other indicators without requiring any decision-making from the investor.

Simple Buy-and-Hold Strategies

One of the simplest forms of passive management is a buy-and-hold strategy where an investor buys a certain amount of cryptocurrency and holds onto it regardless of market conditions. This type of strategy involves less effort than active management but may not be suitable for all investors since it does not account for changing market trends or conditions that may affect an asset’s performance over time.

Automated Indices

Another form of passive management is automated indices which are portfolios built using predetermined criteria such as weightings based on market capitalization or exchange volume. Automated indices require no decision making from the investor but they also lack flexibility when it comes to rebalancing portfolios according to changing markets conditions.

Discretionary Management

On the other hand, active managers make decisions on which assets to buy or sell taking into consideration current market conditions as well as potential gains or losses in order to maximize returns while minimizing risk exposure. Active managers may be better suited for experienced investors who have greater understanding of different markets and can assess risks more accurately than automated indices offer.

Questions Spurred by BlackRock ETF Application

Recently BlackRock submitted an application with SEC seeking approval for its Bitcoin Exchange Traded Fund (ETF). If approved by SEC this could drastically change the landscape for cryptocurrency investments allowing institutional investors like pension funds access to this asset class through traditional vehicles like ETFs rather than having to purchase cryptocurrencies directly and having custody issues associated with them. With this new development come questions about how these traditional vehicles will interact with existing crypto investment models such as SMA platforms, portfolio tools etc? Will there be increased competition between them? What implications this could have on retail investor’s access? These are some questions that need further exploration before we can understand fully what impact this would have on cryptos investment space in general.

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