A Beginner’s Guide to Crypto Asset Management
April 11, 2023
The crypto asset markets have become increasingly attractive for investors in light of the above-average returns the likes of Bitcoin and Ethereum have generated in recent years. However, managing a portfolio of cryptocurrencies can be challenging and requires specialized knowledge and expertise. In this guide, we explain what crypto asset management is, how it works, and whether investing with a professional digital asset management firm could be a good fit for you.
What is Crypto Asset Management?
Crypto asset management, also known as digital asset management, refers to running an investment portfolio composed of digital currencies and tokens, typically on behalf of a group of investors. It involves creating an investment strategy, planning the structure of the portfolio, allocating to digital assets, and managing them to achieve optimum growth. Portfolio monitoring is also an essential piece of the puzzle as it enables portfolio managers to adjust asset allocation based on the performance of the portfolio constituents. Such portfolio adjustments typically entail buying or selling crypto assets to optimize returns. The practice of managing assets is common in traditional finance and is now being applied in the crypto sector as an increasing number of investors are speculating on the prices of digital assets.
How Does Crypto Asset Management Differ from Traditional Investment Management?
While both crypto asset management and traditional investment management pursue the same goal of generating returns for investors, the two investment approaches have a few significant differences. Let’s take a look.
The main difference between crypto asset management and traditional asset management is the asset class in which they invest. Portfolio managers in the traditional financial markets typically invest in stocks, bonds, real estate, and other securities. Crypto asset managers, on the other hand, invest in digital assets, such as Bitcoin (BTC) and Ethereum (ETH).
Most crypto assets are highly volatile, which means their values can go up and down significantly within a short period of time. In traditional capital markets, you typically don’t see such high volatility (with the exception of some equities). Therefore, digital asset managers have to have adequate and robust risk management strategies in place to deal with the high market volatility.
Traditional asset managers dealing in assets such as stocks, commodities, and government bonds are typically able to easily buy and sell large volumes because these are highly liquid markets. In contrast, the crypto asset market lacks the same level of liquidity. As a result, it can be difficult to enter or exit a position without experiencing substantial price slippage. That is especially the case with dealing in mid- and small-cap cryptocurrencies.
Reporting & Transparency
In traditional capital markets, there are strict reporting requirements to ensure that market participants and securities issuers play by the rules. In crypto markets, reporting requirements are still rather limited. However, all on-chain transactions on public blockchain networks can be viewed by anyone, providing a degree of transparency we don’t have in the traditional financial markets.
Finally, the level of regulatory oversight differs significantly. The capital markets are highly regulated, whereas the crypto asset market is still in its early stages and lacks a comprehensive regulatory framework in most jurisdictions. For portfolio managers, that means having risk procedures in place to address possible drops in market value stemming from regulatory risk and to compensate for lack of oversight.
How Does It Work?
Crypto asset managers deploy a variety of investment strategies in the crypto markets to generate risk-adjusted returns on behalf of their investors.The specific approach used by an asset manager varies from company to company and can range from simple buy-and-hold strategies to highly sophisticated algorithmic trading. In either case, we can break down the overall process into five steps:
1. Investment strategy
The first step in crypto asset management is developing an investment strategy. This involves identifying the investment goals, risk tolerance, and market outlook to develop a customized plan that meets investor needs.
2. Portfolio construction
Once an investment strategy has been developed, the portfolio is created by selecting the digital currencies and tokens that align with the strategy. Crypto asset managers may use various techniques to select the appropriate digital assets, such as fundamental analysis, technical analysis, or a combination of both.
3. Risk management
Crypto asset managers use sophisticated risk management strategies to mitigate the risks associated with the crypto asset market. This may involve diversifying the portfolio, implementing stop-loss orders on algorithmic trades, or other risk management techniques.
4. Monitoring and rebalancing
Crypto asset managers monitor the portfolio regularly to ensure it is aligned with the investment strategy and market conditions. Rebalancing may be necessary to adjust the portfolio's asset allocation or mitigate risks associated with sudden market fluctuations.
5. Reporting and communication
Crypto asset managers provide regular reports to their clients, which may include portfolio performance, asset allocation, and market outlook. The transparency provided by on-chain metrics enables digital asset managers to provide detailed accounts of their investments. Communication is also crucial to ensure that clients understand the investment strategy and the rationale behind investment decisions.
Examples of Leading Crypto Asset Management Companies
Let’s take a look at a few examples of market-leading crypto asset managers who manage investments on behalf of different types of investors.
Bitwise Asset Management
Bitwise Asset Management is a San Francisco-based crypto asset management firm founded in 2017. The company provides crypto index funds and crypto ETFs, such as the Bitwise 10 Crypto Index Fund, Bitwise Bitcoin Strategy Optimum Roll ETF, Bitwise Blue-Chip NFT Index Fund, and Bitwise Web3 ETF.The asset manager charges a management fee ranging from 0.85% to 3.0%. The cost varies from product to product. The firm has been managing assets worth over $1.3 billion as of October 2022 and is considered a pioneer in the industry.
Wave Digital Assets
Wave Digital Assets, previously Wave Financial, is a digital asset management firm based in Los Angeles providing private and institutional asset management solutions. The company also offers several crypto funds such as Wave Bitcoin Income and Growth Fund, NFT Fund, Actively-Managed Liquid VC Fund, and the Wave Select 5 Crypto Index Fund. Wave also gives investors advice on how to structure their portfolios.The management fee is about 1%. Wave was founded in 2018, and the assets under its management were worth approximately $1 billion as of March 2023.
Pantera Capital Management
Pantera Capital Management is a California-headquartered investment firm focused on crypto assets. The company offers institutional investors a variety of funds exposed to the blockchain and crypto markets. These funds include the Pantera Bitcoin Fund, Pantera Venture Fund, Pantera Liquid Token Fund, and Pantera Early-Stage Token Fund.Management fees range from 0.75% to around 3%. Assets under management were worth $4.2 billion as of 2022. Pantera was established in 2003.
Off The Chain Capital
Off The Chain Capital, established in 2016, is an investment fund that exposes investors to crypto assets. The fund seeks to outperform Bitcoin with low downside risk and, as of August 31, 2022, had succeeded in 8 out of the last 12 quarters.The value of assets under management was $190 million at the time of writing. Off The Chain’s management fee is 2.5%.
Samara Alpha Management
Samara Alpha Management is an institutional digital asset manager. The company offers sophisticated investors access to alternative sources of alpha through its crypto-focused multi-strategy fund-of-funds and hedge fund seeding and technology platforms. Fostering growth within an otherwise inefficient and fragmented market, the Samara Alpha team combines decades of operational expertise in traditional finance and risk management with its passion for crypto to curate distinct portfolios of risk-controlled strategies.Samara Alpha is backed by Samara Asset Group, which has more than €300 million in assets as of June 30, 2022. Samara Alpha charges a 1% management fee for its market-neutral multi-strategy fund.
Is a Crypto Asset Management Firm the Right Fit for You?
Crypto asset management firms can be an excellent option for investors who want exposure to the crypto market but don’t want to invest in crypto assets directly themselves.However, asset managers are often not accessible to all types of investors because most of them target institutional and high-net-worth individuals.Fortunately, Samara takes a different approach.We allow any type of investor to gain indirect exposure to the broader crypto markets simply by purchasing listed shares in Samara Asset Group.You can learn more about Samara’s listed shares here.
Are there crypto portfolio managers?
Yes. Digital asset management companies employ crypto portfolio managers who manage the crypto asset portfolios of the company’s clients. They will typically have a track record in institutional digital asset investing and, most likely, a background in traditional financial markets.
What is a crypto asset management company?
A crypto asset management company invests pooled funds from investors into various crypto-native strategies. It does all the professional work of managing the underlying crypto assets and generating earnings for investors. In return for these services, investors pay a management fee. Most asset managers typically also charge a performance fee.
How does crypto asset management work?
Crypto asset management entails managing a crypto portfolio on behalf of investors, managing and monitoring the performance of the underlying assets in the portfolio, and adjusting them accordingly to maximize returns while minimizing risk.