Key Points / Passive Investing
In tradfi, passive investing means investing into index funds instead of into individual assets.
Passive investing stands opposite to “stock picking” or “cryptoasset picking”.
On cryptocurrency markets, basket index funds exists and are tradable as tokens.
Tools for Passive Investing: #independent-reserve
Passive investing is a popular way of investing in the legacy stock markets. Investing into index funds is usually marketed as a fool-proof way to invest. It involves no asset-picking on part of the individual investor as buying the index funds provides exposure to all the assets in contains.
Passive investing criticisms
The legendary investor Michael Burry criticised the mass popularisation of passive investing and higlighted its dangers.
According to Burry, index funds are distorting the market because they provide inflow of investor money to companies that would not be invested in by anyone who does his own market analysis and picks individual stocks.
These “not-so-hot” companies form the bottom part of most popular index funds - slightly over half of the businesses in Fortune 500 belongs among them, according to Burry.
Passive investing in crypto
On cryptocurrency markets, index fund equivalents exist. Some of them are purely informative, some can be traded in tokenized form.
Also, there have been experimental initiatives such as Holding top 10 coins by marketcap for a year
Lazy man’s Index Fund experiment:
On the 1st of January, 2018, I bought $100 each of the Top 10 cryptos by market cap. I tracked the experiment and reported each month. There was no weighting or rebalancing.
The result: I ended the year down 85%, my $1000 worth only $150.
For comparison, the BTCUSD market lost 75% between 1 January 2018 and 31 December 2018.
An indepth look at Passive Investing is here.