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Matthew Hogan, Chief Investment Officer (CIO) at Bitwise Asset Management, shared his outlook for cryptocurrencies – specifically why Ethereum could be a good addition to an investor’s portfolio.
Hogan said in Share X 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 portfolio.
Hogan cautions that his comments do not constitute investment advice. However, he believes that the upcoming launch of Ethereum ETFs in the US means that most people may find that this is a good time to add the world’s second-largest cryptocurrency to their portfolios.
Why consider ETH as a wallet?
According to Hogan, it comes down to diversification, as Bitcoin and Ethereum’s use cases target different and historical analytics. There are three reasons.
Commenting on the diversification aspect, he compared the investment landscape during the dot.com boom to the current cryptocurrency market. he wrote:
“It’s very difficult to predict the future accurately. Ask any dot-com boom investor who bought AOL or Pets.com. They got the blanket bet right—the Internet is going to be big!—but the details are wrong.
Today, cryptocurrencies are an emerging technology that has all the potential to change the world. But although it is impossible to predict the future, one way to do so is to “own the market.” A scenario where 75% BTC and 25% ETH could be a “good hypothetical starting point.”
The second reason the Bitwise exec thinks it might be wise to add ETH to a wallet is because of the use cases for Bitcoin and Ethereum.
While Bitcoin is “the best form of money that has ever existed,” Ethereum’s focus is on making money programmable. Stablecoins and DeFi are among the best applications based on this new system.
Although it is difficult to determine which applications will benefit the most from the new technology, broader exposure to both BTC and ETH could be beneficial to the wallet.
The third reason, according to Hogan, is historical analysis.
“Adding ETH to a portfolio over an entire cryptocurrency market cycle has historically enhanced your absolute and risk-adjusted returns compared to adding just BTC,” he said.
Example of a wallet with ETH
A sample portfolio showing performance between May 31, 2020 and May 31, 2024 shows that the traditional 60/40 portfolio generated a cumulative return of 31.47% and an annualized return of just 7.06%.
In comparison, adding 5% to this portfolio with a 100% Bitcoin allocation has cumulative returns that jump to 54.49% and an annualized return of 11.46%. With the addition of Ethereum, this rises to 56.32% and 11.79% respectively for cumulative and annual returns.
Notably, the ETH-added wallet shows a higher return and a lower maximum withdrawal limit.
But Hogan also says:
“My view, in short: If you want to make a broad bet on cryptocurrencies 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.”
