Ethereum is on the cusp of a major network upgrade this summer that is set to completely change the way that coins are created, make the network 99.9% more energy-efficient, and provide longer-term investors with a chance to capture higher yields. This growth and evolution highlights the importance of diversifying within crypto as the space evolves and cryptocurrencies and assets begin to provide more idiosyncratic opportunities, writes Matt Hougan, CIO of Bitwise, and the Bitwise team in a recent paper.
The potential increased performance of Ethereum and ether once the upgrade takes place is expected to have little to no impact on other cryptocurrencies, and as these networks work to establish and grow, they will increasingly offer more diversified opportunities for users and investors.
“The long-term return of any crypto asset is influenced by multiple factors, including factors that impact the crypto industry as a whole and factors that are specific to individual crypto assets. Regulation, for instance, tends to have an industry-wide impact, while events like The Merge [for Ethereum] often impact only one asset directly,” Bitwise writes.
As Crypto Matures, It Becomes More Idiosyncratic
Cryptocurrencies and assets have historically moved largely in tandem as the space was still mostly in earlier developmental stages, but Bitwise sees this trend changing as crypto matures.
“Some investors will take this as a signal to take an active approach, choosing assets at uniquely exciting phases of development. But as we scan the largest assets in the space, many—if not most—have interesting idiosyncratic developments,” the authors write.
There are a number of crypto assets that Bitwise is tracking for a variety of reasons, including bitcoin and its relation to inflation, solana and the recent surge driven by support from Coinbase and OpenSea, and avalanche and the development of “subnets” on its blockchain. Also being watched are polkadot and the development of “parachains” on the blockchain as well as its status as the crypto asset that is most often included in hedge funds, and aave with its significant returns and upgrades in the last month.
“Which technology will have the biggest impact on the market? It’s hard to say. But it is clear that the market has moved beyond bitcoin only,” Bitwise writes.
For investors seeking diversity in their cryptocurrency investments, the Bitwise 10 Crypto Index Fund (BITW) is a fund that offers exposure to the top cryptocurrencies and seeks to track the Bitwise 10 Large Cap Crypto Index. The index is weighted by market cap and collectively represents 70% of the crypto market through the 10 largest cryptocurrencies.
Current allocations include bitcoin at a 60.6% weight, ether at 28.8% weight, solana at 2.7% weight, cardano at 2.3% weight, avalanche at 1.6% weight, and polkadot at 1.6% weight, as well as other smaller allocations.
BITW carries an expense ratio of 2.5%, and the custodian for the fund is Coinbase.
For more news, information, and strategy, visit the Crypto Channel.