With spot Ethereum ETFs on the horizon in the United States, should existing Bitcoin ETF holders split their crypto holdings into ETH?
In a Twitter thread on Thursday, Bitwise CIO Matt Hougan offered three reasons for why this might be a good idea.
Why Bitcoin Holders Should Buy Ethereum
The first, Hougan wrote, is for the sake of diversification. Since predicting the future of crypto is difficult, holding a stake in both leading assets can provide investors relief in case one asset falls out of favor, or gobbles up the other over time.
“Ask any investor from the dot-com boom who bought AOL Pets.com,” Hougan said. “They got the overall bet right—the internet is going to be big!—but the specifics wrong. Sad!”
As of writing, Bitcoin’s market cap accounts for 55% of the entire crypto market, according to TradingView. Ethereum comprises 18.6%.
While ETH has performed generally flat against Bitcoin over the last five years, its dominance against the top crypto has slowly receded since the September 2022 merge. Still, the ETH/BTC ratio received a modest boost when approved to receive a U.S. spot ETF last month.
Secondly, Hougan said the fundamentally different nature of Bitcoin and Ethereum makes it difficult to choose between them. While Bitcoin is optimized towards being “better money,” Ethereum is designed for “programmable money” that enables blockchain applications like stablecoins and DeFi.
“Adding some ETH to a majority BTC position gives you broader exposure to all the things public blockchains can do,” he said.
BTC And ETH Perform Best Together
Lastly, Hougan said the historical performance of both assets shows that they work best when balanced together in a portfolio.
For example, a “traditional” 60/40 portfolio with a 5% crypto allocation had a higher cumulative return over the past four years when weighted 70/30 between BTC and ETH allocations (56.32%) than when allocated purely to BTC (54.49%).
Interestingly, it even had a lower “maximum drawdown” than the BTC-only portfolio over that time, only pulling back 25.19% at its peak compared to 25.35%.
Nevertheless, Hougan said there is still a chief reason investors may want to stay BTC only.
“It’s very likely that Bitcoin is the dominant new form of “money” that emerges in crypto,” said Hougan, citing its massive existing lead and community orientation towards this market.
“Money is a massive market. There’s plenty of space for BTC to run if it succeeds,” he said.
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