Author: Andrew Throuvalas, Crypto Potato; Translated by: Baishui, Golden Finance

With the advent of spot Ethereum ETFs in the U.S., should existing Bitcoin ETF holders add ETH to their cryptocurrency holdings?

In a Twitter post on Thursday, Bitwise CIO Matt Hougan offered three reasons why this might be a good idea.

Why Should Bitcoin Holders Buy Ethereum?

The first is for diversification, Hougan wrote. Since predicting the future of cryptocurrencies is difficult, holding two leading crypto assets can benefit investors in case one falls out of favor or cannibalizes the other over time.

“Just ask any investor who bought AOL Pets.com during the dot-com bubble,” Hougan said. “Their overall bet was right—the Internet would be big!—but the specifics were wrong. Sad!”

As of this writing, Bitcoin’s market cap accounts for 55% of the entire crypto market, according to TradingView. Ethereum accounts for 18.6%.

While ETH has roughly matched Bitcoin’s performance over the past five years, its dominance over the top cryptocurrency has slowly faded since the merger in September 2022. However, the ETH/BTC ratio received a small boost after it was approved for U.S. spot ETFs last month.

Secondly, Hougan said that the fundamental differences between Bitcoin and Ethereum make it difficult for people to choose between them. Bitcoin is optimized to be a "better currency", while Ethereum is designed for "programmable money" and can support blockchain applications such as stablecoins and DeFi.

“Adding some ETH to BTC’s dominance gives you broader exposure to all the things that public blockchains can do,” he said.

BTC and ETH both recorded the best performance

Ultimately, Hougan said the historical performance of both assets suggests they work best when balanced in a portfolio.

For example, a “traditional” 60/40 portfolio with a 5% crypto allocation has delivered higher cumulative returns over the past four years when weighted 70/30 between BTC and ETH allocations (56.32%) than when allocated purely to BTC (54.49%).

Surprisingly, its “max drawdown” was even lower than the pure BTC portfolio at the time, with a drawdown of only 25.19% at its peak, compared to 25.35% at its peak.

However, Hougan said the main reasons why investors might just want to hold onto Bitcoin still exist.

“Bitcoin may well be the dominant new form of ‘money’ to emerge in cryptocurrencies,” Hougan said, citing its huge existing lead and community orientation in that market.

“Money is a huge market. Bitcoin has a lot of room to run if it succeeds,” he said.