Why Crypto Diversification Matters for the Future
Ethereum is on the cusp of a major network upgrade this summer that should completely change the way coins are created, make the network 99.9% more energy efficient, and give longer-term investors a chance to capture higher yields. This growth and evolution underscores the importance of diversification within crypto as the space evolves and cryptocurrencies and assets begin to offer more idiosyncratic opportunities, writes Matt Hougan, CIO of Bitwise, and the Bitwise team in a recent post.
The potential performance boost for Ethereum and Ether once the upgrade is complete should have little to no impact on other cryptocurrencies, and as these networks strive to establish and expand, they will increasingly provide more diverse opportunities for users and investors.
“The long-term performance of any crypto asset is influenced by several factors, including factors that impact the crypto industry as a whole and factors specific to individual crypto assets. Regulation, for example, tends to impact the entire industry, while events like The Merge [for Ethereum] often have a direct impact on a single asset,” writes Bitwise.
As Crypto Matures, It Becomes More Idiosyncratic
Cryptocurrencies and assets have historically evolved largely in tandem as the space was still mostly at earlier stages of development, but Bitwise sees this trend changing as crypto matures.
“Some investors will take this as a cue to take an active approach, picking assets at particularly exciting stages of development. But as we analyze the biggest assets in the space, many, if not most, have idiosyncratic developments. interesting,” write the authors.
There are a number of crypto assets that Bitwise tracks for a variety of reasons, including bitcoin and its relationship to inflation, solana and the recent surge caused by support from Coinbase and OpenSea, and the avalanche and development of “ subnets” on its blockchain. . Polkadot and the development of “parachains” on the blockchain are also being watched as well as its status as the crypto asset most often included in hedge funds, and aave with its significant returns and upgrades over the past month.
“Which technology will have the greatest impact on the market? It’s hard to say. But it is clear that the market has moved beyond bitcoin alone,” writes Bitwise.
For investors looking for diversity in their cryptocurrency investments, the Bitwise 10 Crypto Index Fund (BITW) is a fund that provides exposure to major cryptocurrencies and seeks to track the Bitwise 10 Large Cap Crypto Index. The index is weighted by market capitalization and collectively represents 70% of the crypto market across the top 10 cryptocurrencies.
Current allocations include bitcoin at 60.6% weight, ether at 28.8% weight, solana at 2.7% weight, cardano at 2.3% weight, l avalanche at 1.6% weight and polkadot at 1.6% weight, as well as other smaller allocations.
BITW has an expense ratio of 2.5% and the fund’s custodian is Coinbase.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.