• This article covers the key dilemma of crypto investing and explains 3 different ways to break it down.
• It discusses simple buy-and-hold strategies, automated indices and discretionary management and their respective pros and cons.
• It also considers the growth of this asset class as tools are created to help advisors navigate digital asset investing.
Setting Boundaries: Defining Active and Passive Management for Crypto
Breaking Down the Key Dilemma in Crypto Investing
Crypto investing presents a unique dilemma for advisors – how to manage an asset class that is relatively new, complex, volatile, and rapidly evolving. To help answer this question, we’ll break it down into three distinct models of investment: simple buy-and-hold strategies, automated indices, and discretionary management.
Simple Buy-and-Hold Strategies
Simple buy-and-hold strategies involve purchasing a set amount of cryptocurrency with the intention to hold it for a period of time in order to benefit from any price appreciation. This type of approach requires minimal effort on behalf of the investor but may not be ideal if market conditions become unfavorable or if there is an opportunity for short term gains or arbitrage trades. Additionally, investors must familiarize themselves with proper storage methods (e.g., wallets) in order to secure their assets against theft or loss.
Automated indices provide an easy way to diversify across multiple cryptocurrencies without requiring extensive research or analysis on the part of the investor. These types of investments are typically managed by a third party whose algorithm decides which coins should be included in the portfolio based on certain parameters such as market capitalization or liquidity. These types of investments can be appealing because they require little effort from investors but may not generate returns that exceed those achieved through more active management techniques.
Discretionary management involves actively managing a portfolio by making decisions about when to enter or exit positions based on certain criteria such as technical indicators or fundamental analysis techniques like value investing or momentum trading. This type of approach requires more expertise than either passive buy-and-hold strategies or automated indices but can potentially lead to higher returns if managed properly. Additionally, investors have greater control over how their portfolios are allocated since they can decide which coins they want to include in their portfolios and when they want to enter/exit positions based on market conditions at any given time going forward .
Questions Spurred By The BlackRock ETF Application
The recent announcement that BlackRock has applied for its own cryptocurrency ETF has sparked many questions among advisors about what this means for digital asset investing moving forward . Will traditional finance players like BlackRock open up opportunities for institutional investment? What will happen if there’s approval? How will this affect retail investors? We’ll have to wait until regulatory bodies make their decision before these questions can be answered definitively , but these developments certainly serve as further evidence that digital assets are becoming increasingly mainstream within financial markets today .