Crypto Asset Segregation: How Crypto Asset Management Works. Crypto asset management optimizes bitcoin holdings. This involves using various strategies to increase revenues and reduce risk. Cryptocurrency asset managers analyze market trends, find exciting investment opportunities, and implement customer-focused investment strategies. These managers may utilize diversification, active trading, and risk management to achieve their goals. Additionally, they may use technical analysis, fundamental analysis, and quantitative modeling.
Imagine a client exploring Bitcoin investments without the knowledge to make informed judgments or manage their portfolio. A crypto asset manager would evaluate the client’s risk tolerance and investment goals before creating a diversified cryptocurrency portfolio.
The manager would monitor the market and alter the portfolio regularly to maximize earnings and prevent losses. Fundamental analysis can determine a cryptocurrency’s value, while technical analysis can reveal market patterns. Hedging and stop-loss orders would help the manager reduce losses. Last but not least, they’d update the client on their portfolio and suggest improvements.
Types of Crypto Assets
Crypto assets, sometimes known as cryptocurrencies, are digital assets that employ cryptography to secure transactions and govern the generation of new units. Crypto Asset Segregation: Some examples of the many crypto asset types are as follows:
When converted to U.S. dollars, one Bitcoin is worth around $34,651. It is a decentralized digital money that operates on a peer-to-peer network.
After Bitcoin’s success, new cryptocurrencies sprang up. Ether (ETH) is currently trading at $1,810, Litecoin (LTC) is at $68.28, and Bitcoin Cash (BCH) is at $243.
Stablecoins are cryptocurrencies pegged to a fiat currency or another stable asset like gold or the U.S. dollar. They are developed to stabilize cryptocurrency markets and reduce price swings. Tether USDT and USD Coin USDC both have a value of $1.00. Stablecoins, however, can become unpegged due to a confluence of micro and macroeconomic forces.
Security tokens are digital tokens that reflect ownership in a physical asset, such as a corporation share, a piece of property, or a commodity. Securities laws apply to them just as they do to traditional securities.
Utility tokens are digital assets that can be redeemed to access a particular service or product, such as those offered by a blockchain or a decentralized application (DApp).
Nonfungible tokens (NFTs)
Electronic tokens, or nonfungible tokens (NFTs), stand for unique assets like artworks, collectibles, or digital products. NFTs are widely used in the video gaming and visual arts industries.
Privacy coins are a subset of cryptocurrencies that employ novel cryptographic techniques to protect user confidentiality. Currency like Zcash (ZEC) costs $29, while Monero (XMR) costs $171.These are but a few of the many crypto assets available. There are always new crypto assets being created, and the cryptocurrency market is constantly changing.
How to Segregate Crypto Assets
To control risk and meet specific investment goals, it is common practice to keep various crypto assets in separate pockets of a portfolio. Crypto Asset Segregation: Separating cryptocurrency holdings is explained in more detail below.
By market capitalization
It is common practice to allocate cryptocurrency assets based on their market value. To do this, we need to categorize cryptocurrencies by their total market value, which can be calculated by dividing the price of a cryptocurrency right now by the total number of coins in circulation. Common examples of large-cap cryptocurrencies include Bitcoin (BTC) and Ethereum (ETH), while mid- and small-cap cryptocurrencies refer to altcoins with lower market capitalization.
One alternative is to categorize cryptocurrencies by the industry or sector they aim to serve, the problem they aim to solve, or the audience they hope to reach. Coins like XMR and ZEC, which place a premium on anonymity, belong in one category. At the same time, Enjin ENJ $0.25 and Chiliz (CHZ), more focused on the gaming industry, belong in another.
By risk profile
The volatility and other risk factors of crypto assets can be used to classify them into distinct groups. For instance, stablecoins like USDT and USDC are seen as less risky than highly volatile cryptocurrencies like BTC because their value is pegged to a reliable asset like the U.S. dollar.
By investment strategy
Separating crypto assets by investment strategy entails categorizing cryptos by the portfolio’s goals. For instance, a trader or speculator may wish to keep some of their cryptocurrency holdings for the short term while allocating the rest to long-term investment.
How does Crypto Asset Management Work?
Managing cryptocurrency holdings can include buying, selling, holding, and trading between cryptocurrencies. There are a variety of crypto asset management strategies and techniques available, and investors and managers can choose one that best suits their needs and goals. Some common approaches are as follows:
Passive management, which focuses on long-term growth, entails doing nothing more than buying and holding a diversified portfolio of cryptocurrencies. The asset allocation strategy is maintained through periodic portfolio rebalancing.
This approach requires the asset manager to make more frequent trades and adjustments to the portfolio based on their analysis and forecasts. There is a higher chance of loss with this approach, but the payoff could be more significant in the long run.
Index tracking is a form of passive management whereby a portfolio of cryptocurrencies is purchased to match the performance of an index, such as the Bitwise 10 Crypto Index.
This strategy employs algorithms and data analysis to monitor cryptocurrency markets in search of trends and patterns that can inform better investment decisions.
Coinbase Asset Management is one example of a cryptocurrency asset management service that can be used with the strategies above. These services offer investors various investment strategies, from automated robo-advisors to manually managed portfolios. For instance, Coinbase Asset Management provides multiple investment products to institutional investors, like actively managed portfolios and index funds, as well as a specialized investing service.
Benefits of Crypto Asset Management
Crypto asset management benefits investors and businesses with cryptographic assets. By diversifying their cryptocurrency holdings, investors can reduce the risks of investing in a few coins. Risk management tools and strategies from cryptocurrency asset management platforms and businesses may help investors limit loss.
Company and platform management services for cryptocurrency assets may benefit investors without the knowledge or time to manage their portfolios. This may include risk analysis, portfolio rebalancing, and investment advice.
Each investor has different needs and goals, and cryptocurrency asset management platforms can help. Account segregation may suit your investment style, risk tolerance, and other factors. Diversification is critical when investing, and cryptocurrency companies and media can help by offering diversified portfolios. Providing trading and investment services and exposure to multiple cryptocurrency exchanges can boost investor liquidity.
Asset Segregation Risks
When multiple cryptographic assets, such as cryptocurrencies, are consolidated into a wallet or portfolio, “asset aggregation risks” can occur. Asset aggregation risks are exceptionally high for crypto wallets, which can store many cryptographic assets.
When scammed, investors may unwittingly combine their legitimate cryptographic assets with fraudulent ones, making asset aggregation in cryptocurrency difficult. Hackers can steal cryptocurrency wallet assets. The owner of a cryptocurrency exchange that is hacked and its assets stolen will also suffer an impairment loss.
Crypto asset impairment occurs when the value of a cryptocurrency or other cryptographic asset drops. A drop in market value, regulatory changes, or security lapses that result in asset loss or theft may cause this drop. The asset’s market value dropping is a common reason.
It’s important to remember that an impairment charge is a cost that doesn’t require a cash outlay or lower the asset’s value. Instead, it indicates a change in future asset cash flows. Thus, investors must regularly check the value of their cryptographic assets and account for any value decreases in their financial reporting.
The above risks apply to crypto asset management companies and portfolio management platforms. These companies store large amounts of cryptographic assets for their clients. If these companies fail to protect their customers’ property or experience security breaches, they risk significant financial losses.