Crypto Asset Management: Quick Beginner's Guide
You may have seen a lot of memes and tweets about how real crypto believers do not sell their tokens but hold them to the moon. This approach has the right to live, as well as the opposite one: active portfolio management. Let's find out what it is, whether it is possible to time the market perfectly, and what tools exist for this. Let's go.
What is crypto asset management?
Asset management came to crypto from traditional finance, where it is a whole industry with wealth managers, special tools, and approaches. If you want to understand this in more detail, I recommend reading Boggleheads subreddit (it will be useful from the point of view of investments and wealth management in general, although not for beginners).
So, asset management is the practice of buying and selling assets (tokens, coins, NFTs) while managing a portfolio to experience an overall growth in value.
What is NOT asset management?
Asset management is not a speculation, but an approach to investment management.
Asset management is not about buying a token and holding it until it grows tenfold in value.
Asset management is not a holding to the last drop of faith in a project.
Asset management is not about buying tokens on someone's recommendations without understanding how you will get out of your position.
How does asset management differ from a holding?
Asset management implies a constant review and rebalancing of your positions with the aim of returning to the original allocation size in %.
Rebalancing is an approach to investing when you decide which assets to invest in and how much to invest, and set upper and lower limits for buying and selling assets. As an example, you have 1000 $USDC and decide to buy 50% of $BTC and 50% of $ETH. A week later, bitcoin grows by 5% and ETH falls by 15%. In this case, you sell part of the bitcoin and buy ether to return to the original 50/50.
This strategy gives you a portfolio that is well-balanced following your initial plan. It is often referred to as "selling high and buying low" in relation to the entry point. So, you have a set rate of growth or decline for your portfolio right away. This eliminates the need to time the market.
What does market timing mean?
In simple terms, it is waiting for the perfect price to buy or sell assets. Many investors and traders believe that this is not possible in crypto.
However, some believe that with proper and deep analysis and understanding of trends, it is possible. Rebalancing removes this need altogether. You simply buy or sell depending on how much your allocations have changed.
What is the disadvantage of rebalancing?
The answer is simple: FOMO. The asset you bought or sold today may show a recovery or even a deeper drop in price tomorrow and you will not make a profit or lose more.
How can you deal with this? You can divide your portfolio into two parts: main and experimental ones according to the risk you are willing to bear. The main part is subject to rebalancing, while the experimental part is the same as the hodl to the moon.
What tools are available for rebalancing and managing assets?
DeBank Portfolio is a cool tool for tracking a portfolio and understanding exposure. I use Google Spreadsheet for Ledger assets, where I simply fix the entry price, allocation, and percentage. These are long-term investments in blue-chip projects, so I don't often review my portfolio.
Among the new services for active portfolio management, I would like to mention Threebalance, where you can rebalance your portfolio directly from your wallet (works for Ledger + Metamask). It is self-custody and uses liquidity sources from 1inch (on EVM networks) and Jupiter (on Solana). To understand the logic of this project and get a manual, head to this guide.
What other services do you know? Share in the comments, please. I will also be glad to hear your comments on the topic in general. As for me, there are very few cool materials about asset management in crypto, I have been reading the topic mainly on materials from TradFi and some adaptations for crypto, but I have not seen full-fledged guides for beginners with all the specifics of the industry.