3 Reasons To Invest In Ethereum, 1 To Stay Bitcoin-Only: Bitwise CIO
June 21 2024 - 3:00AM
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In a recent commentary shared on X, Matt Hougan, Chief Investment
Officer at Bitwise Asset Management, which ranks as 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 within crypto investments. Drawing an
analogy to the early days of the internet, he pointed out how
difficult it is to predict which technologies or companies will
dominate over the long term. “It is very hard to predict the future
with precision,” Hougan remarked, referring to investors who bet on
early internet companies like AOL and Pets.com, which failed to
maintain their initial promise despite the internet’s overall
growth. Related Reading: Ethereum At A Crossroads: Big Move Coming
After Consolidation Phase? Applying this lesson to crypto, Hougan
advised a diversified approach to hedge against similar
uncertainties. Ethereum’s current market capitalization stands at
approximately $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 seeking broad market
exposure. Hougan’s second point delved into the functional
differences between Bitcoin and Ethereum. He described Bitcoin as
primarily “a new form of money,” highlighting its design choices
aimed at enhancing its utility as a robust monetary system. “Every
design choice the Bitcoin ecosystem makes is designed to make
Bitcoin the best form of money that has ever existed,” he stated,
underscoring Bitcoin’s targeted development toward optimizing its
use as a currency. Conversely, Ethereum is characterized by its
role as a foundational technology for building new applications
that leverage its capability for programmable money. This includes
everything from issuing stablecoins to enabling complex
decentralized finance (DeFi) ecosystems. “Ethereum’s primary
function is making money programmable,” Hougan explained. He argued
that the ongoing development within the Ethereum ecosystem provides
a broader exposure to the potential applications of blockchain
technology, which is still in its nascent stages. Related Reading:
Double-Whammy For Ethereum: Price Collapses, Exchange Supply Dries
Up The third argument for Ethereum centered on historical
performance data. Hougan pointed out that historically, portfolios
that included Ethereum along with Bitcoin showed better performance
metrics, both 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 both higher returns and a lower maximum
drawdown,” he highlighted. This historical analysis suggests that
Ethereum could offer better downside protection and higher
potential returns, though Hougan cautioned that “past performance
is no 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 other side of the coin, Hougan discussed why many
investors might prefer a Bitcoin-only strategy. This perspective is
especially relevant for those concerned with macroeconomic issues
like the degradation of fiat currencies and inflation. Hougan
posited that Bitcoin’s dominant position and its community’s focus
on becoming a new form of money make it likely to continue leading
this space. “It has a large lead, and size matters in money,” he
stated, supporting the idea that Bitcoin’s simplicity and focused
use-case as digital gold could be more appealing for certain
strategic investments. “Money is a massive market. There’s plenty
of space for BTC to run if it succeeds. […] My view, in a word: If
you want to make a broad bet on crypto 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,” Hougan concluded.
At press time, ETH traded at $3,514.06. Featured image created with
DALL·E, chart from TradingView.com
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