3 Compelling Reasons to Consider Investing in Ethereum According to Bitwise CIO
Matthew Hougan, the Chief Investment Officer (CIO) at Bitwise Asset Management, recently shared his perspective on cryptocurrency and why Ethereum could be a valuable addition to an investor’s portfolio. While he clarifies that his comments should not be considered investment advice, he believes that the launch of spot Ethereum ETFs in the US presents a good opportunity to include the second largest cryptocurrency in one’s wallet.
Hougan outlines three reasons why ETH should be considered for a portfolio, as well as one reason why investors may choose to stick with a Bitcoin-only portfolio. Firstly, he emphasizes the importance of diversification. Drawing a parallel to the dot-com boom, he highlights the difficulty of predicting the future accurately. While it is clear that crypto is an emerging technology with tremendous potential, owning a combination of 75% BTC and 25% ETH could be a prudent starting point.
The second reason Hougan cites is the distinct use cases of Bitcoin and Ethereum. Bitcoin is renowned as the best form of money ever created, while Ethereum’s focus is on programmability. This has led to the rise of applications such as stablecoins and decentralized finance (DeFi). Although it is challenging to determine which applications will thrive, having exposure to both BTC and ETH could be beneficial for a portfolio.
The third reason Hougan puts forth is historical analysis. He argues that adding ETH to a portfolio throughout a full crypto market cycle has historically resulted in higher absolute and risk-adjusted returns compared to solely adding BTC.
To illustrate this point, a sample portfolio from May 31, 2020, to May 31, 2024, is presented. A traditional 60/40 portfolio yielded a cumulative return of 31.47% and an annualized return of 7.06%. However, adding 5% to this portfolio with a 100% BTC allocation increased the cumulative returns to 54.49% and the annualized return to 11.46%. By including ETH, the cumulative returns rose to 56.32% and the annualized return to 11.79%. Notably, the portfolio with ETH demonstrated higher returns and a lower maximum drawdown.
In conclusion, Hougan advocates for owning multiple crypto assets as a broad bet on crypto and public blockchains. However, if one wishes to make a specific bet on a new form of digital money, he suggests buying Bitcoin.
