• Alex Botte of Runa Digital Assets explains why crypto isn’t ready for passive investing.
• Passive portfolios have historically underperformed bitcoin (BTC), and BTC is one of the lowest volatility digital assets.
• Very few tokens are able to re-enter the top 10 or top 100 rankings by market capitalization after falling out.

Active Versus Passive Investing in Crypto

The oldest debate in traditional investment management is whether active or passive investing is the best approach when investing in the liquid token market. Alex Botte, CFA, CAIA, head of client and portfolio solutions at Runa Digital Assets, an investment firm specializing in digital asset portfolios, believes that active management is critical for this asset class.

Bitcoin’s Outperformance

Historically speaking, bitcoin (BTC) has been the primary wealth creator in the asset class. Simple, passive portfolios have underperformed BTC over most calendar years and over a multiyear, full-market cycle. Comparing BTC’s returns to passive, market-cap weighted portfolios of the top 10, 25, 50 and 100 tokens over the past five years reveals that none of these passive portfolios were able to outperform BTC on a risk-adjusted basis as well.

Tokens Falling Out Of Top Ranks

It’s not enough to simply hold the top assets and expect they will continue to outperform; assets that fall out of the top ranks of the market often don’t regain their position. An analysis of annual rankings of the top digital assets by market cap revealed that only 12 out 115 tokens who had dropped out of ranking were able to re-enter it again.

Conclusion

Crypto still isn’t ready for passive investing due to its tendency for high volatility and unpredictable results resulting from holding a portfolio composed solely from passively managed investments such as index funds or ETFs. Active management remains key factor when creating a successful portfolio in this space; it allows investors to identify opportunities for gains while also mitigating risks associated with newly emerging technologies which may turn out not be profitable investments at all.

Implications For Investors

Investors should take into account both historical data and current circumstances before deciding on how they want to invest their money in cryptocurrency markets: it may be wise to diversify their holdings between actively managed funds and passively managed ones such as index funds or ETFs depending on what types of returns they hope to achieve over time with minimal risk exposure

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