Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xxz@黄金财经
For the past 15 years, building a cryptocurrency portfolio has been difficult for traditional investors. You have to piece together investment opportunities using unfamiliar applications, private equity funds or inefficient products, and the costs are often high.
Those days are gone.
With the launch of the Spot Ethereum ETP on July 23, investors can now seize the biggest opportunities in the cryptocurrency space for the first time using only three low-cost, liquid ETPs.
Here is the portfolio that I think investors should use as a starting point:
Bitcoin ETP: 60% allocation
Ethereum ETP: 30% allocation
Crypto Stock ETP: 10% allocation
Below I will explain why I think this is the "basic portfolio" for most investors. I’ll also cover how to add or subtract from these three areas to build a customized portfolio that fits your needs, and how to supplement with other strategic investments.
Why Diversify in Crypto
First, let’s start with the “why.” Why build a crypto portfolio instead of investing directly in Bitcoin?
In short: Crypto isn’t one thing. It’s a breakthrough technology that can be used for a variety of purposes. You can use crypto to create new monetary assets (i.e. digital gold); build a more efficient financial industry (i.e. DeFi); more efficiently transfer dollar-backed assets (i.e. stablecoins); speed up the settlement of stocks and bonds (i.e. tokenization); and much more (decentralized infrastructure, NFTs, prediction markets, decentralized social media, etc.).
These are multi-trillion dollar markets. As an investor, I want exposure to all of them. Unfortunately, no single crypto ETP is up to the job.
Take Bitcoin, for example, it’s the largest and most well-known asset in the crypto space. It’s the leading monetary asset in the crypto space, and it’s capturing a massive market. But Bitcoin only accounts for a little over half of the entire crypto market. Importantly, it’s not the leading platform for DeFi, tokenization, or other smart contract applications. Ethereum is the second-largest asset in the crypto space and dominates the smart contract space.
Both Bitcoin and Ethereum are exciting and leaders in their respective fields. But if you only buy one, you’re missing out on a big part of the market.
Similarly, some applications of crypto are best served by companies rather than crypto assets. For example, stablecoins are one of the most exciting applications of crypto — digital dollars on the blockchain, available worldwide! — but most of the value in creating stablecoins goes to the companies that created them, not the blockchains they trade on.
If you want to fully understand what crypto has to offer, you need all three: Bitcoin, Ethereum, and cryptocurrency companies.
Building and Customizing a Cryptocurrency Portfolio
As mentioned above, I think the right starting point for combining these three assets is as follows:
Bitcoin ETP: 60% allocation
Ethereum ETP: 30% allocation
Crypto Stocks ETP: 10% allocation
I chose these weights because 60-30-10 roughly reflects the market cap of each asset. Why not start with what the market tells you about the relative importance of each asset?
However, I suspect many investors may want to customize their investments by increasing or decreasing the weighting of certain parts. For example:
Overweight Bitcoin: Bitcoin's main use case right now is as a store of value and an emerging currency asset. If you're concerned about hedging your portfolio against inflation, or are concerned about global currency debasement, then you need to overweight Bitcoin.
Overweight Ethereum: Ethereum's main use case right now is as a smart contract platform that supports applications like DeFi and tokenization. If you want to bet on the growth of these applications (such as Wall Street accepting tokenization), then you should overweight Ethereum.
Overweight Crypto Companies: Crypto companies have underperformed crypto assets over the past year: The Bitwise Crypto Innovators 30 Index is up "only" 68% over the past 12 months, while Bitcoin is up 128%. Valuations of crypto companies are attractive when adjusted for growth. Opportunistic investors may want to overweight these stocks.
Beyond that, some experienced investors may want to augment their core crypto portfolios with subsidiary positions in other crypto investments. For example, a crypto index fund provides exposure to a broader range of crypto assets. (Full disclosure: Bitwise manages the world's first and largest crypto index fund.) Or, investors may be interested in active and hedge investing, which have a very different risk profile than long-only investing. Others may want to look into venture investments focused on private companies and next-generation tokens.
But the 60-30-10 three-ETP portfolio above is a great place to start. It provides exposure to the vast majority of the market and major applications of crypto. And it does so with the comfort, familiarity, and cost-effectiveness of a traditional ETP.
A few years ago, even the world's largest institutions would have struggled to assemble such a comprehensive crypto portfolio at such a low cost. Today, every investor can do it.
That sounds like progress.
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