In today’s newsletter, ProShares’ Glenn Williams Jr writes about the growing investment in cryptocurrencies outside of bitcoin.
Then, Michael Sena of Recall Labs answers questions about portfolio construction and diversification on Ask an Expert.
– sarah morton
Investors are broadening their crypto horizons
As the number of cryptocurrencies has expanded, investor appetite for broader exposure has increased. Since its inception with a singular transaction in 2009, the crypto ecosystem has grown to support millions of daily transactions today, and the market capitalization of cryptocurrencies has grown from virtually nothing to over $3 trillion.
Bitcoin, the core asset in the early days of cryptocurrencies, is still often seen as a proxy for the entire asset class. But while bitcoin currently represents about 60% of global crypto value, the cryptocurrency universe is expanding rapidly, with a host of new digital assets capturing market share and increasing investor attention.
The rise of the rest
Since 2023, the market capitalization of cryptocurrencies, excluding bitcoin, has grown by 175%. Ether, the world’s second largest crypto asset, has grown 142% during that period. Meanwhile, the use cases for cryptoassets have also evolved at an extremely rapid pace. While bitcoin can be seen as a store of value, other cryptoassets offer use cases, such as decentralized borrowing and lending.
Investors are also considering structural differences within the digital asset space. While some digital assets host their own blockchains (e.g. Bitcoin, Ethereum, Solana), others are built on top of existing ones, such as Uniswap and Aave. This distinction alone affects everything from governance rights to potential cash flows. In short, diversity among cryptoassets evolves daily and gaining exposure to just one (or even two) limits exposure to the entire asset class.
Crypto market capitalization, excluding bitcoin
Source: TradingView, data from January 1, 2023 to January 1, 2023. 27.2026.
An indexed approach for evolving times
Indices like the CoinDesk 20 Index (CD20) aim to provide investors with broad, diversified exposure to cryptocurrencies as a whole. As capital flows into digital assets, the dispersion of performance between index components may increase.
The possibilities of internal rotation within cryptocurrencies can be seen as similar to sectoral rotation in traditional finance. For example, correlations between CoinDesk 20 components and US stocks remain fluid, with ebbs and flows that reflect a still maturing asset class. Still, for long periods, correlations between cryptocurrencies and stock markets have been moderate.
By measuring the performance of the 20 largest digital assets by market capitalization (excluding stablecoins and other currencies), CD20 currently represents 90% of the total cryptoasset market share. Eligibility is determined by a classification of the largest digital assets and is guided by liquidity, custody and listing requirements. There is a quarterly reconstitution and rebalancing to keep pace with changes in the crypto asset class. Additionally, the CoinDesk 20 methodology imposes a 30% cap on its largest asset and a 20% cap on all others to limit concentration on a single coin.
Reference Points Matter
For any emerging asset class, it is important to establish benchmarks. Investors have developed a comfort level with them over time and consult them daily. In my opinion, CoinDesk 20 is designed to do the same for digital assets, organizing their inherent (though sometimes unrealized) diversification into a liquid, investable unit of exposure.
This information is not intended to be investment advice. Any forward-looking statements contained herein are based on ProShare Advisors LLC’s expectations at this time. However, whether or not actual results and developments will conform to ProShare Advisors LLC’s expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; changes in laws or regulations or other actions taken by government authorities or regulatory bodies; and other global economic and political events. ProShare Advisors LLC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investing involves risks, including possible loss of principal.
– Glenn C. Williams, Jr., CMT, Manager and Investment Specialist, ProShares
ask an expert
Q: In today’s crypto market, what does meaningful diversification beyond simply holding multiple tokens actually look like?
Meaningful diversification in cryptocurrencies is not about collecting tokens but understanding the risks. If everything in your portfolio moves at the same time, you are not diversified, but simply exposed to the same cycle in different wrappers. Real diversification means thinking beyond price charts, taking the necessary exposure in categories such as infrastructure, decentralized finance (DeFi), real-world assets and digital commodities, combined with different business models that generate sustainable value.
It also means diversifying how do you operate. Custody solutions, liquidity providers, exchanges and regulatory environments shape outcomes as much as the assets themselves. The goal is to balance innovation with stability, capturing growth while protecting capital.
Diversification is not a numbers game but rather disciplined risk management in a complex market.
Q: As correlations between cryptocurrencies and traditional assets change, how should investors rethink diversification in a more macroeconomic environment?
Investors must recognize that cryptocurrencies are now part of the broader financial system. As markets mature, digital assets react to the same forces as traditional assets: interest rates, liquidity, geopolitics and regulation. Therefore, diversification should start with a macro view rather than a list of tokens.
The key question is no longer “how many assets I own”, but “what risks am I exposed to”. When global liquidity shrinks, Bitcoin, stocks and technology can move together. True diversification means balancing risk factors: inflation sensitivity, yield exposure, geography and regulatory environments.
Portfolios should be built around strategies. Combining liquid assets with income-generating businesses and real-world exposure creates resilience in correlated markets, surviving better and stronger. That’s exactly what we do at BTF.
Q: During periods of volatility, where do you see investors most often misunderstand risk when trying to diversify their exposure to cryptocurrencies?
The most common mistake is to confuse activity with diversification. Investors buy more tokens, more chains, more narratives, assuming they have reduced risk. In reality, they often simply multiply the same exposure. During volatility, correlations approach one and portfolios that seemed diversified on paper collapse together. Liquidity risk is also widely misunderstood. Assets that appear liquid in calm markets can become impossible to exit when conditions change, something most people don’t expect to happen, until they do.
Operational risk is another blind spot. Custody providers, exchanges, stablecoins and counterparties may matter more than the assets themselves. True diversification is not about owning more, but about understanding what truly protects capital in stressful situations. Anyone who understands and sets their strategy accordingly will definitely win.
Q: Many still treat Bitcoin as a substitute for the entire crypto market from a treasury strategist’s perspective. How does diversification across infrastructure, issuance models and risk profiles actually protect capital?
Bitcoin is the foundation of cryptocurrencies, but it is not the whole story. From a treasury perspective, treating one asset as a substitute for an entire industry is simply an incomplete idea.
Cryptocurrencies today are an ecosystem with multiple sources of return. Infrastructure produces recurring fees. Tokenized assets are linked to the real-world economy. Different issuance models create very different risk profiles. Active strategies behave differently than passive exposure. These elements do not move at the same time, especially in volatile markets.
Diversification protects capital when risk is spread across how value is generated. A professional approach goes beyond a single asset and creates exposure to the broader mechanisms of the industry.
– Michael Sena, Marketing Director, Recall Labs
