Chief Investment Officer (CIO) Matthew Hougan of Bitwise Asset Management has offered three convincing arguments why investors would choose to include Ethereum in their portfolios, reflecting his positive view on cryptocurrency. Hougan also discussed in a post on X a situation whereby some investors would still find attraction in a Bitcoin-only portfolio.
Hougan underlined that his observations are not financial guidance but highlight a possible opportunity for individuals to invest in the second most valuable cryptocurrency as spot Ethereum ETFs are about to be introduced into the US.
Hougan showed the challenge of projecting particular winners in new technologies by contrasting the present crypto scene with the dot-com boom. Ask any dot-com boom investor who purchased AOL or Pets.com, he said.
Ethereum And Bitcoin Diversifying Crypto Portfolios For Optimal Returns
Though the specifics are off, they got the general bet right—the internet will be huge! Hougan advises a diversified crypto portfolio considering the erratic character of technology developments, starting with 75% Bitcoin and 25% Ethereum.
With Ethereum offering programmable money, and Bitcoin sometimes referred to as “the best form of money that has ever existed,” both cryptocurrencies have various uses. Ethereum’s blockchain is fundamental for distributed finance (DeFi) applications and stablecoins. Hougan contends that although which applications will predominate is unknown, more exposure to BTC and ETH will help an investing portfolio.
Hougan used past performance to show that, when including ETH in a portfolio, absolute and risk-adjusted returns across a whole crypto market cycle have historically improved compared to a BTC-only portfolio.
He showed that a conventional 60/40 portfolio had a cumulative return of 31.47% and an annualized return of 7.06%. He gave an example of portfolio performance from May 31, 2020, to May 31, 2024. Including 5% in BTC raised these numbers to 54.49% and 11.46%, respectively. ETH added helped the returns drop maximum drawdown and increase to 56.32% cumulative and 11.79% annualized.
Hougan also pointed out that some investors could favor a Bitcoin-only approach, saying, “You should possess several crypto assets if you want to make a broad bet on crypto and public blockchains. Buy Bitcoin if you wish to gamble on a new kind of digital money specifically.
Hougan’s observations give new and experienced investors important thoughts as the Bitcoin market develops. Although Ethereum offers convincing advantages, the decision between a diversified crypto portfolio and a Bitcoin-only approach finally comes down to personal investing objectives and risk tolerance.
