As an investor, you face two choices. You can try to pick winners, studying dozens of different blockchains and their unique token economics and fundamental drivers. Or you can bet on the entire sector by purchasing a diversified index fund that holds leading assets weighted by market cap.
Written by: Matt Hougan, Chief Investment Officer of Bitwise
Compiled by: 0xjs, Golden Finance
Today, the pace of development in the crypto space is astonishing. Ideas that seemed absurd a month ago now fall between possible and probable.
Just in the past week:
Senator Cynthia Lummis (Republican from Wyoming) called attention to the 'cavalry' of crypto supporters arriving in Washington and shared a proposal to allow the U.S. government to sell part of its gold reserves to purchase one million bitcoins.
Attorneys General from 18 states filed a lawsuit against the U.S. Securities and Exchange Commission, accusing it of 'serious overreach in its government regulation of the cryptocurrency industry.'
BlackRock has expanded its tokenized money market fund BUIDL to five new blockchains: Aptos, Arbitrum, Avalanche, Optimism, and Polygon. Notably, one of the assets associated with these blockchains was previously labeled as a 'security' by the SEC.
We will wait and see what happens next week.
For the past four years, the entire industry has faced legal disputes, regulatory uncertainty, limited basic banking services, and hostility from Washington. All of this has been swept away, replaced by a White House that supports cryptocurrency, a Congress that supports cryptocurrency, and regulatory bodies that support cryptocurrency.
(In some ways, the shift in sentiment is almost surreal. For example, Elon Musk is creating a new government agency named after a meme coin: the Department of Government Efficiency, abbreviated as DOGE.)
All of this suggests that anything is possible in the crypto space over the next four years.
What does this mean for investors?
As an investor, it's easy to feel optimistic about cryptocurrency when seeing this. However, knowing exactly which assets are worth watching is much more challenging.
Aside from Bitcoin (which is the leading monetary asset in the cryptocurrency space and should be the foundational asset for most crypto allocations), the future outlook is unclear. For example, there is great anticipation for programmable blockchains like Ethereum and Solana, but there is widespread disagreement on how things will actually unfold:
Will Ethereum maintain its current lead as the most valuable programmable blockchain, or will it be surpassed by newer/faster/cheaper blockchains like Solana?
If Ethereum remains dominant, will ETH tokens or Layer 2 networks like Arbitrum and Optimism that help scale Ethereum gain more value?
What about promising newcomers like Aptos and Sui? Will they surpass Ethereum and Solana?
How much value will crypto-based applications like Uniswap gain if regulations become clearer?
Ask ten crypto experts these questions, and you will get ten different sets of answers.
You can see the impact of this uncertainty in the recent returns of various crypto assets. How many people expected XRP to rise 77% last week?
As an investor, you face two choices. You can try to pick winners, studying dozens of different blockchains and their unique token economics and fundamental drivers. Or you can bet on the entire sector by purchasing a diversified index fund that holds leading assets weighted by market cap.
The first fund launched by Bitwise in 2017 was the world's first cryptocurrency index fund. We envisioned it as the 'S&P 500 of the cryptocurrency space,' providing investors with a simple way to gain diversified exposure to the sector. The idea at the time—just like now—was that buying the entire track was a wise move.
Sometimes, you don't initially know which will win between AltaVista and Google, but you know that internet search will change the world. Indices allow you to participate in the development and prosperity of new fields without analyzing the details or making specific calls.
For bold, comprehensive, and diverse innovations like cryptocurrency, as well as innovations that suddenly enter a new era of possibilities, this strategy seems more relevant than ever.
