Bitwise CIO: Build a 6:3:1 portfolio around BTC, ETH, and crypto stocks
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Bitwise CIO: Build a 6:3:1 portfolio around BTC, ETH, and crypto stocks
The launch of spot Ethereum ETPs marks the first time investors can access significant opportunities in cryptocurrency through three low-cost, highly liquid ETPs.
Navigating Web3 tides with focused insightsAuthor: Matt Hougan
Translation: TechFlow
With bitcoin, ether and crypto equities now available as exchange-traded products (ETPs), investors can easily access much of the opportunity in cryptocurrency.
For the past 15 years, it's been difficult for traditional investors to build a cryptocurrency portfolio. You had to rely on unfamiliar apps, private funds or inefficient, costly products.
But that's all in the past.
Today, with the launch of spot ether ETPs, investors have their first chance to capture major opportunities in crypto through three low-cost, highly liquid ETPs.
Here’s the portfolio I believe investors can use as a starting point:
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Bitcoin ETP: 60% allocation
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Ether ETP: 30% allocation
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Crypto equities ETP: 10% allocation
I’ll explain why this is the “core portfolio” for most investors, how to customize it by adjusting the weights of these three components to suit your needs, and how to supplement it with other strategic investments.
Why Diversify Within Cryptocurrency
First, let’s address the “why.” Why build a diversified crypto portfolio instead of just investing in bitcoin?
Simply put: cryptocurrency isn’t just one asset. It’s a breakthrough technology enabling multiple applications. You can use crypto to create new monetary assets (like digital gold); build more efficient financial systems (like DeFi); transfer dollar-backed assets more efficiently (like stablecoins); accelerate settlement of stocks and bonds (like 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. But no single crypto ETP delivers that.
Take bitcoin, the largest and best-known crypto asset. It dominates as a monetary asset and addresses a massive market. Yet bitcoin represents just over half of the total crypto market cap. More importantly, it isn’t the primary platform for decentralized finance (DeFi), tokenization, or other smart contract applications. That’s where ethereum comes in. As the second-largest crypto asset, ethereum leads in smart contracts.
Bitcoin and ethereum each have unique strengths and market positions. Holding only one means missing out on a large part of the market.
Moreover, some crypto applications are best accessed through companies rather than crypto assets themselves. For example, stablecoins—one of crypto’s most exciting applications—are digital dollars on blockchains, globally accessible! Yet much of the value from creating stablecoins accrues to the companies building them, not the blockchains on which they trade.
To gain comprehensive exposure to all crypto opportunities, you need all three: bitcoin, ethereum, and crypto companies.
Building and Customizing a Crypto Portfolio
As noted, I believe the following combination is an ideal starting point:
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Bitcoin ETP: 60% allocation
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Ether ETP: 30% allocation
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Crypto equities ETP: 10% allocation
I chose these weights because 60-30-10 roughly reflects the market capitalization of each asset class¹. Why not start with what the market tells us about the relative importance of each?
However, many investors may want to customize their portfolios by overweighting or underweighting certain components. For example:
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Overweight bitcoin: Bitcoin’s primary use is as a store of value and emerging monetary asset. If you’re concerned about hedging inflation or global currency debasement, consider increasing your bitcoin allocation.
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Overweight ether: Ethereum’s main role is as a smart contract platform powering applications like DeFi and tokenization. If you’re bullish on the growth of these applications—say, Wall Street embracing tokenization—consider increasing your ether allocation.
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Overweight crypto equities: Over the past year, crypto equities have underperformed crypto assets: The Bitwise Crypto Innovators 30 Index rose 68% over the last 12 months, while bitcoin gained 128%. Adjusted for growth, crypto equities now appear attractively valued. Opportunistic investors might choose to overweight these stocks.
Additionally, more sophisticated investors might enhance their core portfolio with satellite positions in other areas of crypto. For instance, crypto index funds offer exposure to a broader range of crypto assets. (Full disclosure: Bitwise manages the world’s first and largest crypto index fund.) Or, investors might explore active and hedged exposures, which carry very different risk profiles from simple long-only investing. Others may focus on venture capital, targeting private companies and next-generation tokens.
But the three-ETP portfolio is an excellent starting point. It provides broad exposure to the major markets and applications within crypto, with the comfort, familiarity and cost-efficiency of traditional ETPs.
Just a few years ago, even the world’s largest institutions struggled to build such a comprehensive crypto portfolio at such low cost. Today, every investor can do it.
This is undoubtedly a huge leap forward.
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