A recent commentary Matt Hougan – Chief Investment officer at Bitwise Asset Management – the largest cryptocurrency index fund provider in the world – explained why cryptocurrency investors should diversify their portfolio by adding Ethereum to Bitcoin. Hougan presented three reasons why investors should embrace ETH while presenting a critique of remaining solely invested in BTC.
Ethereum vs. Bitcoin – 3 reasons for Ethereum
Hougan stressed the importance diversification of crypto investment. He compared the current situation to early internet days, and said that it was difficult to determine which companies or technologies would dominate in the future. “It is very hard to predict the future with precision,” Hougan commented, making reference to early internet companies such as AOL and Pets.com that failed to keep their promise, despite internet growth.
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Hougan urged a diversification of strategies to mitigate similar risks. Ethereum’s market cap is currently around $420 billion. This figure is significant, but only one third of Bitcoin’s market cap. Hougan suggested a solution based on these numbers. default starting allocation Investors seeking broad exposure to the market can get 75% Bitcoin or 25% Ethereum.
Hougan’s next point focused on the differences in functionality between Bitcoin and Ethereum. He described Bitcoin as primarily “a new form of money,” Its design features are geared towards enhancing the system’s utility. “Every design choice the Bitcoin ecosystem makes is designed to make Bitcoin the best form of money that has ever existed,” He also emphasized that Bitcoin is being developed in a way to optimize its usability as currency.
Ethereum’s role is to be a technology that enables new applications that use its programmable currency capability. It includes the entire process of issuing stablecoins Creating complex Decentralized Financial (DeFi Ecosystems)
“Ethereum’s primary function is making money programmable,” Hougan explained. He said that Ethereum’s ongoing development provides an exposure to potential blockchain applications, still at its infancy.
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Third, historical data on performance is a strong argument in favor of Ethereum. Hougan emphasized that, historically, portfolios that include Ethereum alongside Bitcoin have shown superior performance metrics in both absolute terms, and after risk adjustment, over the full cycle of crypto markets.
“My favorite thing about that table is that the +ETH portfolio has both higher returns and a lower maximum drawdown,” He highlighted. Hougan cautioned, however, that the historical analysis suggested that Ethereum might offer a better level of downside protection as well as higher returns. “past performance is no guarantee of future returns” It was noted that a Bitcoin only strategy had outperformed in recent, shorter periods.
The Counterpoint: Bitcoin Only Strategy Could Be Better
Hougan addressed the flip side, explaining why some investors may prefer to use a Bitcoin only strategy. The perspective of this article is particularly relevant to those who are concerned about macroeconomic issues Like the devaluation of fiat currency and inflation.
Hougan stated that Bitcoin will continue to lead this field due to the dominant position it holds and its focus as a community on becoming a “new form of money”. “It has a large lead, and size matters in money,” He said that Bitcoin’s focus on digital gold and simplicity could appeal to certain investors.
“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 has concluded.
At the time of publication, ETH is trading for $3,514,06.
Featured image created with DALL·E, chart from TradingView.com
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Source: www.newsbtc.com