Expert Weighs In on Ethereum vs. Bitcoin for Diversified Crypto Portfolios
In a recent commentary on X, Matt Hougan, Chief Funding Officer at Bitwise Asset Management, outlined why investors should diversify their cryptocurrency portfolios by including Ethereum (ETH) alongside Bitcoin (BTC). Hougan provided three main reasons for this strategy:
- Diversification: Drawing parallels to early internet investments, Hougan highlighted the unpredictability of technological dominance and suggested a diversified approach to hedge against similar uncertainties in the crypto space. He recommended a starting allocation of 75% Bitcoin and 25% Ethereum for broad market exposure.
- Functional Differences: While Bitcoin is aimed at becoming a robust form of money, Ethereum serves as a foundational technology for building programmable money applications, such as stablecoins and decentralized finance (DeFi).
- Historical Performance: Portfolios that included Ethereum alongside Bitcoin historically showed better performance metrics, offering higher returns and lower risk-adjusted drawdowns. However, Hougan cautioned that past performance does not guarantee future returns.
Hougan also addressed why some investors might prefer a Bitcoin-only strategy, particularly those concerned with macroeconomic issues like fiat currency degradation and inflation. He emphasized Bitcoin’s dominant position and its focused use-case as digital gold, suggesting that it could be more appealing for specific strategic investments.
Hougan concluded by stating that investing in multiple crypto assets is advisable for those making a broad bet on crypto and public blockchains, while a focused bet on digital money should favor Bitcoin. At the time of writing, ETH traded at $3,514.06.