In a recent commentary shared on X, Matt Hougan, Chief Investment Officer at Bitwise Asset Management, which ranks because the world’s largest provider of cryptocurrency index funds, detailed why investors should consider diversifying their cryptocurrency portfolio by adding Ethereum (ETH), alongside maintaining a position in Bitcoin (BTC). Hougan offered three compelling reasons for investors to embrace ETH, while also presenting a critical viewpoint for remaining invested solely in BTC.
Ethereum Vs. Bitcoin: 3 Reasons Pro-Ethereum
Hougan began by emphasizing the importance of diversification inside crypto investments. Drawing an analogy to the early days of the web, he identified how difficult it’s to predict which technologies or corporations will dominate over the long run. “It is rather hard to predict the longer term with precision,” Hougan remarked, referring to investors who bet on early web corporations like AOL and Pets.com, which did not maintain their initial promise despite the web’s overall growth.
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Applying this lesson to crypto, Hougan advised a diversified approach to hedge against similar uncertainties. Ethereum’s current market capitalization stands at roughly $420 billion, which is substantial but still only about one-third that of Bitcoin’s $1.3 trillion market cap. Given these figures, Hougan proposed a default starting allocation of 75% Bitcoin and 25% Ethereum for investors searching for broad market exposure.
Hougan’s second point delved into the functional differences between Bitcoin and Ethereum. He described Bitcoin as primarily “a latest form of cash,” highlighting its design selections aimed toward enhancing its utility as a strong monetary system. “Every design alternative the Bitcoin ecosystem makes is designed to make Bitcoin one of the best form of cash that has ever existed,” he stated, underscoring Bitcoin’s targeted development toward optimizing its use as a currency.
Conversely, Ethereum is characterised by its role as a foundational technology for constructing latest applications that leverage its capability for programmable money. This includes all the things from issuing stablecoins to enabling complex decentralized finance (DeFi) ecosystems.
“Ethereum’s primary function is making a living programmable,” Hougan explained. He argued that the continuing development throughout the Ethereum ecosystem provides a broader exposure to the potential applications of blockchain technology, which continues to be in its nascent stages.
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The third argument for Ethereum centered on historical performance data. Hougan identified that historically, portfolios that included Ethereum together with Bitcoin showed higher performance metrics, each in absolute terms and when adjusted for risk, across full crypto market cycles.
“My favorite thing about that table is that the +ETH portfolio has each higher returns and a lower maximum drawdown,” he highlighted. This historical evaluation suggests that Ethereum could offer higher downside protection and better potential returns, though Hougan cautioned that “past performance is not any guarantee of future returns” and noted that in shorter, recent periods, a Bitcoin-only strategy would have outperformed.
Counterpoint: Why a Bitcoin-Only Strategy May Be Preferable
Addressing the opposite side of the coin, Hougan discussed why many investors might prefer a Bitcoin-only strategy. This angle is very relevant for those concerned with macroeconomic issues just like the degradation of fiat currencies and inflation.
Hougan posited that Bitcoin’s dominant position and its community’s deal with becoming a latest form of cash make it prone to proceed leading this space. “It has a big lead, and size matters in money,” he stated, supporting the concept that Bitcoin’s simplicity and focused use-case as digital gold might be more appealing for certain strategic investments.
“Money is an enormous market. There’s loads of space for BTC to run if it succeeds. […] My view, in a word: If you would like to make a broad bet on crypto and public blockchains, you must own multiple crypto assets. If you would like to make a particular bet on a latest type of digital money, buy Bitcoin,” Hougan concluded.
At press time, ETH traded at $3,514.06.
Ether price, 1-week chart | Source: ETHUSD on TradingView.com
Featured image created with DALL·E, chart from TradingView.com