Breaking Down Active vs. Passive Management in Crypto Investing
This article explores the different investment models in crypto investing, drawing parallels with active vs. passive management in traditional finance. It discusses the emergence of various tools and strategies in the crypto space and examines the pros and cons of each approach.
Main Points:
- Traditional investment models can be applied to cryptocurrency investing.
- Tools like SMA platforms, portfolio tools, and ETFs have been developed for crypto investors.
- The article covers buy-and-hold strategies, automated indices, and discretionary management.
- Advisors need to decide which investment strategy to recommend to their clients.
- There are differing recommendations for the percentage of assets to invest in crypto.
Looking Through an Active/Passive Lens for Crypto
The article highlights the ongoing debate between active and passive management in traditional asset classes and how this debate is still evolving in the crypto space. It discusses the challenges faced by advisors in navigating the nascent and less-defined landscape of crypto investment products.
Main Points:
- The boundaries between active and passive investment vehicles are clearer in traditional finance compared to crypto.
- Advisors in traditional finance focus on determining the level of active risk to take on for clients.
- Advisors in the crypto space face challenges due to the lack of sophistication and ease of access in active and passive crypto investment options.
Single Token Buy-and-Hold
The article presents the first category of the crypto investment landscape, which is the buy-and-hold strategy implemented through exchanges, SMAs, or investment trusts. It outlines the pros and cons of this approach.
Main Points:
- Buy-and-hold is a simplistic way to add digital assets to a portfolio.
- Pros: easy implementation, liquidity, accessibility.
- Cons: lack of diversification, potential for high volatility.
Ask an Advisor – Adam Blumberg
In this section, an advisor answers common questions related to crypto investment. The questions cover topics such as viewing crypto in a portfolio, rebalancing strategies, and whether clients should hold crypto or invest in a fund.
Main Points:
- Crypto can be considered an alternative asset with different risk characteristics.
- Rebalancing depends on the investment thesis and risk profile.
- Choosing between holding crypto or a fund depends on compliance regulations and the investment thesis.
Closing Thoughts
The article concludes by raising questions about the future of crypto investments, including market share growth in the U.S., challenges with self-custody, and the inclusion of crypto in retirement savings accounts.
Hot Take:
Crypto investing is still evolving, and advisors must carefully consider the active and passive options available. As the market matures, more sophisticated tools and strategies will likely emerge to support the growing interest in digital asset investing.
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