Following the US presidential election, cryptocurrency headwinds have seemingly dissipated. Since early November, Bitcoin has reached $100,000 amid regulatory victories such as the nomination of cryptocurrency advocate Paul Atkins to replace Gary Gensler as SEC chairman, the appointment of cryptocurrency advocate David Sacks as incoming White House “AI and cryptocurrency czar” and congressman. Appointment of French Hill to head the House Financial Services Committee. With the election season coming to a crypto-favorable end in 2024, some predict “altcoin” seasona period of outperformance for cryptoassets other than BTC, which will continue into 2025, but is this the correct way to characterize digital assets broadly?
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Market commentators sometimes hastily categorize the crypto economy into two oversimplified groups: 1) bitcoin (and now for some, ether) and 2) alternative or “alt” currencies. In the early days of digital assets, this dual categorization made sense as bitcoin was pioneering the use of blockchain technology and other use cases were still finding their place. Nearly 16 years since the creation of bitcoin, an explosion of crypto innovation and sector-specific applications has taken blockchain assets beyond the binary classification of bitcoin and “everything else.” Investors must now treat cryptocurrencies as a diverse multi-sector asset class.
Putting the components of the digital asset class into perspective
The “altcoin” moniker can give the impression that digital assets other than bitcoin lack size and industry-specific purpose compared to components of other asset classes, such as stock markets. Figure 1 below compares the market capitalizations of similarly sized S&P500 index components with those of prominent ex-BTC crypto assets, and shows similarities between these asset classes not only in terms of component size, but also in terms of sector diversification:
Figure 1: Market Caps of Top 25 Cryptoassets (ex-BTC) vs. S&P 500 Components Smaller Than ETH
Not only do shares of certain well-known companies highlighted above resemble top 25 crypto assets in size (for example, Solana has a similar market cap to UPS), but both asset classes also span a variety of industries within their respective markets. . While the number of digital assets shown above is relatively small compared to the number of stocks, these crypto assets, along with new and innovative crypto projects on the market, are likely to continue to expand the size and breadth of the asset class. active even more over time.
Build diversified digital asset portfolios for the long term
Taking a binary “bitcoin versus alts” approach to digital asset investing can forgo the benefits of portfolio building both within cryptocurrency investments and across your overall asset allocation. Gaining carefully constructed, diversified and intentional exposure to all cryptocurrency sectors and use cases helps defray the risks of asset concentration, ensures your portfolio is exposed to the full value proposition of the asset class, and provides a greater number of sources of return within your broader portfolio. asset allocation. Given the innovative and rapidly changing nature of the digital asset landscape, it is crucial to create cryptocurrency allocations that can adapt to the breadth of the asset class. This can be achieved by adopting a process for choosing the universe of assets to include in your portfolio, adjusting this universe over time and sensibly allocating these assets through passive or active management. Embracing the broader crypto economy as an asset class within your investment portfolio means allocating digital assets across strategies designed for the long term.
Conclusions for an evolving asset class
Focusing on bitcoin versus “everything else” may obscure the already significant and rapidly growing footprint of many crypto assets and could cause investors to miss out on the long-term portfolio benefits associated with comprehensive investing within the asset class.
