Bitcoin Dominates Market, But Ethereum Offers Unique Benefits and Diversification

Bitwise CIO Matt Hougan outlined three compelling reasons why Bitcoin investors should also consider buying Ethereum, emphasizing diversification, unique asset properties, and historical performance during a recent Twitter thread.

Recent U.S. regulatory approval for spot Ethereum exchange-traded funds (ETFs) has sparked anticipation among investors regarding the potential impact on crypto markets. In light of this development, some may wonder whether current Bitcoin ETF holders should consider reallocating a portion of their crypto holdings to Ethereum (ETH).

Three compelling reasons support this strategy.

Firstly, diversifying crypto holdings by simultaneously holding stakes in Bitcoin and Ethereum can serve as a protective measure against potential risks. This strategy ensures that if one asset experiences a decline in favorability or is surpassed by another over time, investors are less likely to be adversely affected, given the difficulty in predicting the precise future trajectory of each crypto asset.

“Ask any investor from the dot-com boom who bought AOL Pets.com,” Bitwise CIO Matt Hougan said in a recent Twitter thread. “They got the overall bet (the internet is going to be big!) but the specifics (AOL Pets.com to the moon!) wrong. Sad!”

Bitcoin’s market capitalization currently comprises 55% of the total cryptocurrency market, while Ethereum accounts for 18.6%, according to TradingView at the time of writing.

ETH's dominance over Bitcoin has gradually declined since the September 2022 merge, despite generally lagging behind Bitcoin over the past five years. However, the ETH/BTC ratio showed a slight increase when Ethereum was approved for a U.S. spot ETF last month.

Secondly, the distinct nature of Bitcoin and Ethereum makes it challenging to choose between them. While Bitcoin is designed to be “better money,” Ethereum is “programmable money,” enabling blockchain applications like stablecoins and decentralized finance (DeFi).

“Adding some ETH to a majority BTC position gives you broader exposure to all the things public blockchains can do,” Hougan noted.

Finally, the historical performance of both assets suggests they are most effective when balanced within a portfolio. For instance, a "traditional" 60/40 portfolio with a 5% crypto allocation achieved a higher cumulative return over the past four years when weighted 70/30 between BTC and ETH allocations (56.32%) than when allocated solely to BTC (54.49%).

It also experienced a lower "maximum drawdown" than the BTC-only portfolio during that period, peaking at 25.19% compared to 25.35%.

However, Hougan acknowledged a primary reason an investor might prefer to remain exclusively invested in BTC: “It’s very likely that Bitcoin is the dominant new form of ‘money’ that emerges in crypto.”

“It has a massive head start and the community is oriented around this market,” he added. “Plenty of space for BTC to run if it succeeds.”

News source：https://www.kdj.com/cryptocurrencies-news/articles/bitcoin-dominates-market-ethereum-offers-unique-benefits-diversification.html

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