Bitwise: ETH surges, should we allocate other crypto assets besides BTC?

Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: AIMan@Golden Finance

Something big happened last week: Ethereum began to recover.

After months of plummeting (down nearly 60%), the world's second-largest crypto asset has rebounded sharply. Since its low on April 12, its price has risen 53%, and it has soared 37% in the past week alone.

There are multiple reasons behind this trend, including the successful implementation of Ethereum's major upgrade and the overall market shift to risk-on sentiment.

This rise has many investors starting to think: Should they diversify their crypto asset holdings beyond Bitcoin?

It's a good question.

Bitcoin is the king of crypto assets - the largest, most liquid and most mature. In my opinion, it is similar to "digital gold" and the only crypto asset that has the opportunity to become an important global currency.

But I think most investors should still allocate other crypto assets.

Why is this so? History can give us inspiration.

Internet Investing in 2004

Let’s say you wanted to invest in the Internet in 2004. At the time, search was the dominant business and Google was the industry leader.

You might think: the Internet will have a huge future, I want to buy the dominant companies in the dominant markets.

This would have been a good strategy. In the past 20 years, Google’s stock price has risen 6309%.

But the Internet is a general technology that can be used not only for search, but also for other fields: retail, social media, video, business-to-business (B2B) software, etc.

This means that in 2004, in addition to Google, you can also buy the leading companies in various verticals: Amazon, Netflix, Salesforce, etc.

Here’s how this investment strategy worked:

Tech Giants Performance (2004-Present)

Google has performed extremely well and is now one of the most valuable assets in the world. But other sectors have also performed well—in fact, the best performer is Netflix, which would have been unforeseeable in 2004.

Blockchain is a general purpose technology

Like the internet, blockchain is a general purpose technology.

You can use blockchain to create a better form of currency (like Bitcoin), or build a programmable network for transferring "real assets" (like Ethereum, Solana, Avalanche); you can develop new applications (like decentralized finance DeFi, decentralized physical infrastructure DePin), or middleware that provides services for other blockchains (like Chainlink); you can also build traditional companies that support the crypto economy (like Coinbase, Circle, Marathon Digital).

I guess there are many things we can do with blockchain in the future that we haven't even thought of today.

The diversity of blockchain's functionality means that although there may be different opinions, the returns of different blockchain assets over time will vary significantly. Here are the annual returns of Bitcoin, Ethereum, Solana, and Chainlink over the past five years:

Crypto Asset Performance (2020-2024)

Which asset will perform best from now to 2030? This is a question worth thinking about!

Implications for Investors

This does not mean that everyone should invest outside of Bitcoin.

If you believe that the only use of blockchain is to defend against the abuse of fiat currency, my advice is to just buy Bitcoin. Bitcoin is the only crypto asset with a clear chance of becoming “money,” and it will be extremely difficult, if not impossible, for other competitors to surpass it.

But if you agree with my view that blockchain is a general purpose technology — for example, you are interested in the idea that “almost everything in the world will be on a blockchain” — then history suggests that you need to own a basket of crypto assets: Bitcoin, Ethereum, Solana, Chainlink, etc.

Finally, I want to share a statistic that surprised me despite my extensive experience in exchange-traded funds (ETFs) and the crypto industry: Over the past 20 years, actively managed U.S. equity funds have underperformed their benchmarks 97% of the time.

In a space as fast-moving, large, and unpredictable as crypto, this statistic is worth pondering.

My advice: don’t get hung up on picking winners, but invest at a macro level.