Bitwise CIO Matt Hougan: 3 Compelling Reasons Bitcoiners Should Also Invest in Ethereum

Bitwise CIO Matt Hougan outlined three compelling reasons why Bitcoin investors should also consider buying Ethereum, emphasizing diversification, unique asset properties, and historical performance during a recent Twitter thread.

Bitwise CIO Matt Hougan Explains Why Bitcoin ETF Holders Should Consider Adding Ethereum for Diversification and Future Gains

Should current Bitcoin ETF holders consider reallocating their crypto holdings to Ethereum (ETH) in anticipation of the potential introduction of spot Ethereum ETFs in the United States?

According to CryptoPotato, on June 20, Bitwise CIO Matt Hougan outlined three reasons this strategy could be beneficial in a Twitter thread.

First, Hougan emphasized diversification. Holding stakes in both prominent assets can protect investors if one asset falls out of favor or overtakes the other over time, as predicting the future of crypto is challenging.

“Ask any investor from the dot-com boom who bought AOL Pets.com,” Hougan said. “They got the overall bet right—the internet is going to be big!—but the specifics wrong. Sad!”

Bitcoin Dominates Market, But Ethereum Offers Unique Benefits and Diversification

According to TradingView, Bitcoin's market capitalization comprises 55% of the total cryptocurrency market at the time of writing, while Ethereum accounts for 18.6%.

ETH's dominance over Bitcoin has gradually diminished since the September 2022 merge despite its generally lackluster performance against Bitcoin over the past five years. However, the ETH/BTC ratio experienced a slight increase when Ethereum was approved to receive a U.S. spot ETF last month.

Secondly, Hougan highlighted the distinct nature of Bitcoin and Ethereum, making it difficult to choose between them. Ethereum is designed to be "programmable money," facilitating blockchain applications such as stablecoins and DeFi, whereas Bitcoin is optimized to be "better money."

“Adding some ETH to a majority BTC position gives you broader exposure to all the things public blockchains can do,” he said.

Finally, Hougan pointed to the historical performance of both assets, indicating they are most effective when balanced within a portfolio. For example, a "traditional" 60/40 portfolio with a 5% crypto allocation achieved a higher cumulative return over the past four years when weighted 70/30 between BTC and ETH allocations (56.32%) than when allocated solely to BTC (54.49%).

Interestingly, it experienced a lower "maximum drawdown" than the BTC-only portfolio during that period, with an apex of 25.19% versus 25.35%.

However, Hougan maintained that there is still a primary reason investor may wish to remain exclusively invested in BTC. “It’s very likely that Bitcoin is the dominant new form of ‘money’ that emerges in crypto,” he said, citing its massive existing lead and community orientation towards this market.

“Money is a massive market. There’s plenty of space for BTC to run if it succeeds,” he said.

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