Bitwise: 3 Reasons Bitcoin Enthusiasts Should Buy Ethereum

Author: Andrew Throuvalas, Crypto Potato; Compiler: Baishui, Golden Finance

With the advent of spot Ethereum ETFs in the U.S., should existing Bitcoin ETF holders add ETH to their cryptocurrency holdings?

In a Twitter post on Thursday, Bitwise CIO Matt Hougan offered three reasons why this might be a good idea.

Why should Bitcoin holders buy Ethereum?

Hougan wrote thatFirst, it’s for diversification.Since predicting the future of cryptocurrencies is difficult, holding two leading crypto assets can benefit investors in case one falls out of favor or cannibalizes the other over time.

“Just ask any investor who bought AOL Pets.com during the dot-com bubble,” Hougan said. "They were right about the overall bet — the internet was going to be big! — but wrong about the specifics. Sad!"

As of this writing, Bitcoin's market cap accounts for 55% of the entire crypto market, according to data from TradingView. Ethereum accounts for 18.6%.

While ETH has roughly matched Bitcoin's performance over the past five years, its dominance over the top cryptocurrency has slowly faded since the merger in September 2022. However, the ETH/BTC ratio got a small boost last month after it was approved for U.S. spot ETFs.

Secondly, Hougan said that the fundamental differences between Bitcoin and Ethereum make it difficult to choose between them. Bitcoin is optimized to be a "better money," while Ethereum is designed for "programmable money" that can support blockchain applications such as stablecoins and DeFi.

“Adding some ETH to BTC’s dominance gives you broader exposure to everything a public blockchain can do,” he said.

Both BTC and ETH Record Top Performance

Finally, Hougan said that the historical performance of both assets suggests they work best when balanced in a portfolio.

For example, a “traditional” 60/40 portfolio with a 5% crypto allocation had higher cumulative returns over the past four years when weighted 70/30 between BTC and ETH allocations (56.32%) than when allocated purely to BTC (54.49%).

Surprisingly, its “max drawdown” was even lower than that of the pure BTC portfolio at the time, with a drawdown of only 25.19% at its peak, compared to 25.35% at its peak.

However, Hougan said the main reasons why investors might just want to hold onto Bitcoin remain.

“Bitcoin may well be the dominant new form of ‘money’ that emerges in cryptocurrencies,” Hougan said, citing its huge existing lead and community orientation in that market.

“Money is a huge market. Bitcoin has a lot of room to run if it succeeds,” he said.