I am about to give my party their first bag of holding and am wondering how DnD Beyond manages this in game. Is it a case of manually changing the encumbrance of the player carrying it and then expecting them to remember what is stored in the bag vs what is equipped by them, or does DND beyond manage this automatically allowing easy tracking? 

DNDBeyond doesn't manage it at the moment. It needs to be done by the player holding it.

The best way (currently) is to click on it to open the side menu and customising it. Give the bag a prefix like an emoji or an acronym or something. Then go to every item the player is carrying that is inside the bag of holding and doing the same thing - and customising its weight to 0 while they're at it. Giving the items a prefix sorts them all in the equipment list for easier viewing.

Quote from Emmber >>

DNDBeyond doesn't manage it at the moment. It needs to be done by the player holding it.

The best way (currently) is to click on it to open the side menu and customising it. Give the bag a prefix like an emoji or an acronym or something. Then go to every item the player is carrying that is inside the bag of holding and doing the same thing - and customising its weight to 0 while they're at it. Giving the items a prefix sorts them all in the equipment list for easier viewing.

Is that something the player can do themselves, or do I as the DM need to do it?

Everyone can customise their own equipment (and everything else on their sheet). You should be able to do it as the DM as well I think.

I dont use DNDBeyond to play, so I dont know if this can work, but perhaps simply create an N(PC) named Bag of Holding and set their carrying capacity to 500 lbs?

I really like Emmber's suggestion.

The bag of holding character can work too, but suggest naming the bag of holding character after the owner. Never know if there may be another bag in the group. Plus it puts it next to the owner in the campaign character listing.

For items moved into bag of holding you can customise them and set weight to zero. In the Notes field add in "Bag of Holding" and in the Notes field add in the item's original weight.

When viewing your inventory you can literally use the search bar typing in "holding" and it will display the bag itself plus anything with "holding" in the Notes field, for easy access and reference.

I created a Google sheet for my group and shared it with them. So now we can track things placed inside, how many items there are, and total weight.

Anything placed inside the bag we remove from our inventory here on D&D Beyond.

Quote from Cyb3rM1nd >>

For items moved into bag of holding you can customise them and set weight to zero. In the Notes field add in "Bag of Holding" and in the Notes field add in the item's original weight.

When viewing your inventory you can literally use the search bar typing in "holding" and it will display the bag itself plus anything with "holding" in the Notes field, for easy access and reference.

 This^^^

Only, instead of “Bag of Holding” I use emojis as a visual quick reference for myself like this: https://ddb.ac/characters/25101833/02DApA

Not sure why - but have noticed the last few days that the customisation isn't taking hold. 

ie/ you customise, it looks like it works, then shut the tab down and reload the character and the item is reverted back to the usual/base one. 
Time doesn't seem to have much of an effect on this. I had it open for at least an hour after one change and it was reverted to base ... 

It’s a server caching issue. Log out and back in and it should clear up in about 20 mins.

What about setting the bag's weight to -500 lbs?

Quote from DMWoja >>

What about setting the bag's weight to -500 lbs?

That basically assumes that everything the person is carrying is inside the bag - and I don't think that's ever the case.

Add a backpack.  Customize it's name.   Also add the item Bag of Holding just for reference.  Put things in your Backpack renamed a Bag of Holding.  Do NOT equip the backpack renamed a Bag of Holding.  Stuff moved there will not count as weight you carry.  You can track to see the 500lbs it holds, though.

Another fun way to use this is to make a storage place for when you leave stuff behind at an inn or what-not.  Rename another backpack "Inn Storage" or "Base Storage" or "Strongbox" or whatever, and do the same thing.  Can help you remember (1) what you have, (2) where you have it, and (3) manage weight, while (4) keeping all your stuff in your inventory.

Not perfect, but it seems to work on my sheets in DND Beyond.

Hope this helps!

The bag of holding functions properly now, so you don’t real need to do that stuff anymore.

Well, interesting.  Wasn't working for me.  Then again, I think I'm missing an important part of it!

Ironically, the backpack fix was easy for me to sort out.  Ah, back to the Character Sheet again!