Cryptocurrency market has been developing rapidly, and advisors can help clients develop effective investment strategies through diversification, customized investment, transparency, professional management, and time-saving methods. Active and passive investment strategies provide different investment approaches, and investors can access active strategies through funds or separately managed accounts. It is expected that more actively managed ETFs will emerge over time.
The professionalization of cryptocurrencies has become a reality, whether it is tokenized securities, cryptocurrency futures products from the world’s largest asset management companies, or platforms that support financial advisors to enter this emerging market.
In the cryptocurrency field, there is a lot of knowledge to be mastered, but time is extremely limited. How will you develop effective investment strategies for clients? Eric Ervin, CEO of Onramp Invest, suggests that as clients’ interest in cryptocurrency investments continues to increase, advisors can consider adopting various cryptocurrency investment models. Leo Mindyuk, CEO of ML Tech, discussed active and passive Bitcoin and other cryptocurrency investment strategies in an “expert Q&A” session.
Just the tip of the iceberg: developing cryptocurrency strategies without causing fatigue
My team and I have been discussing the significant changes in the cryptocurrency market. Compared to a year ago, when everyone was directly communicating with investors and encouraging them to participate in a large number of exchange operations and independent investments, we now see more concentrated efforts to support professionals. Undoubtedly, whether it is tokenized securities, cryptocurrency futures products from the world’s largest asset management companies, or platforms that support financial advisors to enter this emerging market, the professionalization of cryptocurrencies is rapidly taking shape.
This is good news for advisors. This not only means that clients can have a wider access to various digital assets but also means that advisors can now launch new products in their business by providing the services clients need and increasing their assets under management (AUM). Companies equipped with access solutions will thrive. As we have seen in the case of Bitcoin ETFs, investors have a clear demand for cryptocurrencies, and this opens the door for advisors to a broader world of digital assets. However, despite the diverse demand for digital assets, the recommended allocation of cryptocurrencies in portfolios is still only 1-6%. When 95% of your business book consists of traditional market funds, how do you keep up with every token or leader in this 24/7 changing market?
In the traditional market, there are professional asset management companies that can manage these tasks on your behalf. Why not use the same tools to master the market you are not familiar with?
Applying familiar tools to unfamiliar markets
Just like in the traditional market, the use of separately managed accounts (SMAs) does not mean that due diligence can be replaced; they allow advisors to maximize coverage of the best parts of the digital asset market through well-researched strategies. Let’s take a closer look at how RIAs apply this traditional tool to new asset classes:
Five ways asset management strategies in cryptocurrencies benefit advisors
Diversification: Cryptocurrency models allow advisors to provide clients with diversified investment portfolios. This diversification helps reduce overall risk by diversifying investments across assets with different risk characteristics.
Customization: Advisors can customize cryptocurrency models based on individual clients’ specific investment goals and risk tolerance. They can adjust the composition of investment portfolios based on factors such as market conditions, client preferences, and investment strategies.
Transparency: Many cryptocurrency asset management companies provide real-time transparency for portfolio holdings and performance. This transparency helps clients track their investments and understand how funds are managed, building trust.
Professional management: Advisors can leverage the expertise and insights of top asset management companies to make wise investment decisions on behalf of clients.
Time-saving: With the latest market insights, automatic rebalancing, and thoughtful allocations provided by asset management companies, advisors can save a significant amount of time that would otherwise be spent on research, allowing them to focus on other important aspects of client portfolios.
Fully leveraging this asset class for clients
We all know the saying “make your money work harder” has become a cliché, but it also applies to digital asset investments. Investing all assets in Bitcoin is like putting all your money in one stock. The performance of cryptocurrencies, including lesser-known ones or altcoins, can outperform Bitcoin or Ethereum at times due to significant seasonal changes in the digital asset market. When investors do not consider a comprehensive cryptocurrency investment strategy, they overlook the potential of the market in a meaningful way. As professionals, you can now help them fully leverage these opportunities by providing access to a broader ecosystem.
Meeting demand and accumulating expertise
It is understandable to feel overwhelmed by the amount of education required for cryptocurrencies. Everyone has different needs and values. Through asset management strategies, you can proactively address the market, accumulate knowledge in the process, meet the demands, and maintain the relevance of your company. This market is constantly evolving, and industry leaders like Onramp Invest are committed to keeping you ahead.
Expert consultation
Q: What is the main difference between active and passive cryptocurrency investment strategies? How do they affect risk and potential returns in the volatile cryptocurrency market?
In the cryptocurrency market, just like in the traditional market, active and passive investment strategies offer two different approaches to portfolio construction and management. Passive investment strategies typically involve selecting a basket of cryptocurrencies and holding them for the long term, unaffected by short-term market fluctuations. This strategy can be achieved through purchasing cryptocurrency ETFs or holding diversified portfolios, whether through funds or separately managed accounts (SMAs). This strategy often involves less ongoing management, lower transaction costs, and simpler tax handling due to lower trading frequency. In highly volatile market environments, successful passive strategies can often achieve returns close to their benchmarks. For example, the performance of a Bitcoin ETF should be very close to a long-term hold strategy, albeit with higher volatility and potential larger drawdowns.
On the other hand, active cryptocurrency strategies aim to generate attractive absolute returns or outperform the market average through exploiting market inefficiencies and sophisticated risk management. Active strategies typically involve continuous market monitoring, active risk control, higher trading costs, and higher performance and management fees paid to professional asset managers. If executed properly, active strategies can effectively mitigate the volatility and drawdowns of asset classes, resulting in higher risk-adjusted returns. Active management strategies are diverse and adaptable to different investment objectives and risk-return expectations.
In the challenging cryptocurrency market, the choice between active and passive strategies can significantly impact investors’ investment outcomes.
Q: What types of active investment strategies exist?
For investors, there are various active management strategies with different risk and return characteristics. For example, funding rate arbitrage, basis arbitrage, statistical arbitrage, and long-short and short-term directional strategies aim to achieve absolute returns. These strategies are often complex, involving multiple quantitative approaches, optimized execution, and advanced risk management techniques, and they often have low correlation with cryptocurrency prices, allowing them to take advantage of market inefficiencies in emerging asset classes to achieve higher Sharpe ratios and lower drawdowns.
Another type of active management strategy aims to outperform specific benchmarks, such as a Bitcoin buy-and-hold strategy or a market-cap-weighted buy-and-hold strategy. These strategies typically involve some return forecasting, market timing, and risk management frameworks. If executed properly, active management can provide investors with lower volatility and higher returns compared to corresponding passive strategies. Investors can access these active management strategies through fund structures or separately managed accounts in the spot and futures markets. It is expected that more actively managed ETFs will emerge over time for investors to choose from.
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Disclaimer: The opinions expressed in this article represent the views of the author and do not constitute investment advice.
Original article link:
https://www.bitpush.news/articles/6652627
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