Every investor has thought about passive and active portfolio management at some point in their journey. This applies to both professional investors and those who simply invest casually for whatever reasons they may have. For professional investors, it is obvious that they have to an active approach to this. However, that is not always the case. Whatever strategy you choose should be what works best for you, not because someone said so.
What is Crypto Portfolio Management?
Crypto portfolio management is the act of selecting, allocating, and managing digital assets in a way that meets your financial objectives. It involves deciding which cryptocurrencies to invest in, how much to allocate to each asset, and when to buy or sell. Since the crypto market is highly volatile, having a solid portfolio management strategy is crucial to balancing risk and reward.
There are two primary ways to manage your crypto assets. You could either try passive or active management. New investors find it hard to figure out the best strategy between passive or active crypto portfolio management. Each approach has its benefits and risks.
The Passive Approach
This is a long-term approach. All you have to do is buy and hold an asset for a long period (sometimes decades). The passive approach requires a lot of patience and resilience because you have to resist the temptation to sell whenever the market dips. The end goal is that your investment will yield capital gains and in some cases, dividends.
The strategy is really simple. You buy a mix of crypto with high potential, something like Bitcoin or Ethereum, and you allow it to mature. No constant checking or selling. This is one of the surest ways to future-proof your portfolio – great cryptos are those with a proven track record.
One of the biggest advantages of passive investing is its simplicity. It does not require continuous monitoring of the market. This makes it ideal for those who do not have the time or expertise to understand the charts. By avoiding excessive trading, passive investors also save on transaction fees, which can quickly add up.
However, some risks come with passive investing. Since it relies on the assumption that crypto assets will appreciate in the long run, investors are exposed to market fluctuations and without a strategy, they will lose heavily. If a particular crypto fails to recover from a dip, you have the options of selling at a loss, buying more of the coin to average down, or holding in hopes that it reverses its course.
The Active Approach
The active approach is usually done by professional traders and investors. It requires constant attention and a lot of mental work. You have to actively research the market to identify which coins to invest in and for how long because timing is also everything.
One of the advantages of this approach is that you can get multiple small wins in one day which can compound over time. For example, Bitcoin can rise by as high as 5% within hours and then fall back down. Knowing when to enter and exit can make all the difference between taking a profit or loss.
The downside to the active approach is that it is a full-time job. It consumes so much time and requires traders to be updated on current market trends. It requires some level of professionalism and constant engagement. Mistakes can be very costly and market volatility can lead to sudden and unexpected losses.
Another disadvantage is that it comes at a higher cost. Every time you place a trade you have to pay a transaction fee to the exchange platform or a regulatory body.
The Hybrid Approach
This approach is the balance between the passive and the active approach. It is perfect for those who want to keep an eye on their investment but don’t have the time or the resources needed to keep constant watch.
You can choose to invest long-term in high-potential crypto coins and at the same time, actively trade in some promising altcoins. This strategy does not tie up all your funds and also allows you to make some profits in the short term.
In 2024, Bitcoin was the great-performing crypto with a 125% growth, making it a good option for a passive investment plan. You can try out a 70 / 30 combination strategy. You invest 70% of your crypto portfolio in Bitcoin or any other high-cap coin and hold them for the long term. Then, spread the other 30% across various altcoins with good potential and actively trade them for fast returns.
Which Strategy Works Best?
There is no best strategy. Each approach has its pros and cons. However, each investment style is best suited for certain types of investors.
If you are a believer in the long-term potential of crypto or you prefer to not spend too much time worrying about investments, then the passive strategy is best for you. It is also the right approach for you if you do not want to spend too much money on transaction fees or you want to avoid the risks of the volatile market. This is best for those who do not like stress.
For those who have the time and the expertise to understand the crypto market, then the active strategy is the wise option. This is for people with a high tolerance to stress and risks. Some people love the thrill of the volatile crypto market and do not mind the active approach. So, if you like to gain frequently from short-term trading opportunities and can handle the emotional pressure, then this is your best option.
For most investors, a hybrid strategy offers a practical middle ground. By combining both approaches, you can take advantage of the stability of passive investing while also seizing short-term trading opportunities.
Final Thoughts
So far in 2025, about 28% of American adults (roughly 65 million) people own crypto. This figure has doubled over the past 3 years. This simply means more people will continue to invest in crypto and the industry will continue to expand.
You do not have to be a professional to own or manage your crypto assets. All you need to do is to find your investment style. You can choose to play it safe and choose the passive route or keep things exciting by becoming an active investor. There is no right or wrong strategy.
Businesses come with risks and so does crypto. Understand your risk tolerance, stick to your financial goals, and set out time to manage your portfolio.
