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  • Writer's pictureTeam Sygnum

Digital Nugget: October 2020

Active or passive - which approach works best in crypto investing?

Despite what you hear from vested interests, neither active or passive investing is clearly better than the other in crypto markets.

Active investing can generate a lot of value because the crypto market offers plentiful opportunities for alpha generation, far in excess of what is available at this point in the traditional markets.

Meanwhile passive investing requires no specific expertise or time invested in researching the investments and closely following the markets – this is a particular advantage in crypto as the expertise required for successful active investing is highly specialised and takes time to acquire.

At the same time, both approaches have certain risks and flaws which are mostly due to the still nascent state of the crypto market.

Passive investing is hampered by the flaws in index construction – inconsistent rules for constituent selection, less than ideal methodologies for constituent weights, or in some cases de facto active investing disguised as passive.

Outsourcing active investing to managers is made difficult by the typically small sizes, short track records, opaqueness and style drifts among actively managed funds – accurately assessing manager skill to consistently generate alpha is challenging.

Ultimately, the investor’s choice between active or passive investing should come down to their risk tolerance and the amount of time and effort they can dedicate to researching and monitoring their investments.

For investors new to the market, choosing diversified investment vehicles, whether passive or active, makes sense.

When selecting investment products, on the passive side the focus should be on looking for well constructed indices underpinning the product, while on the active side funds with proven alpha generation and high operational standards should be sought.

Relative performance of Sygnum's digital asset products

[1] ETP: Sygnum Platform Winner Index

[2] Fund: Sygnum Digital Asset Multi-Manager Fund


This document was prepared by Sygnum Bank AG. This document may contain forward looking statements and may be subject to change. The opinions expressed herein are those of Sygnum Bank AG, its affiliates and partners at the time of writing. The document is for informational purposes only and contains general material. It is for use by the recipient only. It does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum Bank AG to purchase or sell assets or securities. It is not intended to be used as a general guide to investing, and should be used for informational purposes only. When making an investment decision, you should either conduct your own research and analysis or seek advice from an expert to make a calculated decision. The information and analyses contained in this document have been compiled from sources believed to be reliable. However, Sygnum Bank AG makes no representation as to its reliability or completeness and disclaims all liability for losses arising from the use of this information.

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