Ethereum
Should you buy Ethereum? Bitwise CIO shares 3 reasons to be optimistic
Matthew Hougan, Chief Investment Officer (CIO) at Bitwise Asset Management, shared his crypto outlook – specifically why Ethereum can be a good addition to an investor’s portfolio.
Hougan said in a Message 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 wallet.
Hougan cautions that his comments do not constitute investment advice. However, he believes the upcoming launch of Ethereum spot ETFs in the US means most people may find it a good time to add the world’s second-largest cryptocurrency to their portfolio.
Why consider ETH for a wallet?
According to Hougan, this is due to diversification, with Bitcoin and Ethereum use cases targeting different and historical analytics. 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 Internet boom investor who bought AOL or Pets.com. They made a good overall bet – the Internet is going to be huge! – but they are wrong on the details.
Today, cryptography is an emerging technology that has all the potential to change the world. But while it’s impossible to predict the future, one way to do so is to “own the market.” A scenario in which its 75% BTC and 25% ETH could be “a good starting point by default”.
What does that mean? Today, the market capitalization of ETH, the crypto asset that powers the Ethereum blockchain, is around $420 billion. That’s about a third of the size of Bitcoin’s $1.3 trillion. The default starting point for many should therefore be around 75% Bitcoin and 25% ETH.
– Matt Hougan (@Matt_Hougan) June 20, 2024
The second reason the Bitwise exec thinks it might make sense to add ETH to a wallet relates to the Bitcoin and Ethereum use cases.
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 relying on this new system.
While it’s hard to say which applications will benefit the most from the new technology, broader exposure to BTC and ETH could work for a portfolio.
The main function of Ethereum is to make money programmable. It is a technology platform for new applications that build on public blockchains, such as stablecoins and DeFi.
– Matt Hougan (@Matt_Hougan) June 20, 2024
According to Hougan, the third reason is historical analysis.
“Adding ETH to a portfolio over a full crypto market cycle has historically increased both your absolute and risk-adjusted returns compared to adding BTC only,” he said.
An example wallet with ETH
An example 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 pushes cumulative returns to 54.49% and annualized returns to 11.46%. With ETH added, this increases to 56.32% and 11.79% for cumulative and annualized returns respectively.
Notably, the wallet with added ETH shows both a higher yield and a lower maximum drawdown.
But Hougan also says:
“My take, in a nutshell: If you want to bet broadly on crypto and public blockchains, you need to own multiple crypto assets. If you want to bet specifically on a new form of digital currency, buy Bitcoin.