Matthew Hougan, Chief Investment Officer (CIO) at Bitwise Asset Management, has shared his perspective for cryptocurrencies, specifically why ethereum can be a good addition to an investor's portfolio.
Hougan said in a x.com/Matt_Hougan/status/1803767313566724108″ target=”_blank” rel=””>x publication There are three reasons why one might want to add eth to their portfolio, and another reason why investors might choose to stick with a bitcoin-only portfolio.
Hougan cautions that his comments do not constitute investment advice. However, he believes that the upcoming launch of the ethereum spot ETF in the US means that most people may consider this a good time to add the world's second-largest cryptocurrency to their wallets.
Why consider eth for a wallet?
According to Hougan, it is all due to diversification, the use cases of bitcoin and ethereum point to different historical analyses. There, three reasons.
Commenting on the diversification aspect, he compares the investment landscape during the dot.com boom to the current crypto market. He wrote:
“It is very difficult to predict the future accurately. Ask any dot-com boom investor who bought AOL or Pets.com. They got the overall bet right (the Internet is going to be big!), but the details were wrong.”
Today, cryptocurrencies are an emerging technology with all the potential to change the world. But while it is impossible to predict the future, one way to do so is to “own the market.” A scenario where your 75% btc and 25% eth could be “a good default starting point.”
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The second reason the Bitwise executive believes it would be prudent to add eth to a wallet is the use cases for bitcoin and ethereum.
While bitcoin is “the best form of money that has ever existed,” ethereum's goal is to make money programmable. Stablecoins and DeFi are among the main applications that depend on this new system.
Although it's hard to say which applications will make the most of the new technology, broader exposure to both btc and eth can work for a portfolio.
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The third reason, Hougan believes, is historical analysis.
“Adding eth to a portfolio over a full crypto market cycle has historically increased both its absolute and risk-adjusted returns compared to adding just btc,” he said.
An example of a wallet with eth
A sample portfolio showing performance between May 31, 2020 and May 31, 2024 shows that a traditional 60/40 portfolio had a cumulative return of 31.47% and an annualized return of only 7.06%. .
In comparison, adding 5% to such a portfolio with a 100% btc allocation has a cumulative return jumping to 54.49% and an annualized return of 11.46%. With eth added, this increases to 56.32% and 11.79% respectively for the cumulative and annualized returns.
<img loading="lazy" decoding="async" width="760" height="314" src="https://crypto.news/app/uploads/2024/06/portfolio-example.png” alt=”Should you buy ethereum? Bitwise CIO Shares 3 Reasons to Be Optimistic – 1″/>
In particular, the portfolio with added eth shows higher performance and lower maximum drawdown.
But Hougan also says:
“My opinion, in a word: if you want to make a big bet on cryptocurrencies and public blockchains, you should own multiple crypto assets. If you want to make a specific bet on a new form of digital money, buy bitcoin.”
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