Following the U.S. presidential election, crypto’s headwinds have seemingly dissipated. Since early November bitcoin has reached $100K amid regulatory wins such as the nomination of crypto-friendly Paul Atkins to replace Gary Gensler as SEC chair, the naming of crypto advocate David Sacks as the incoming White House “AI and Crypto Czar,” and Congressman French Hill’s appointment to head the House Financial Services Committee. With election season coming to a crypto-favorable close in 2024, some are forecasting “altcoin” season, a period of outperformance for non-BTC crypto assets, to continue in 2025 — but is this the right way to characterize digital assets broadly?
Market commentators sometimes hastily sort the crypto economy into two oversimplified groups: 1) bitcoin (and now for some, ether) and 2) alternative or “alt” coins. In the early innings 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 footing. Nearly 16 years since bitcoin’s inception, an explosion of crypto innovation and sector-specific applications has pushed blockchain assets beyond the binary classification of bitcoin and “everything else.” Investors must now treat crypto as a diverse multi-sector asset class.
You’re reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.
Putting the constituents of the digital asset class in perspective
The “altcoin” moniker may give the impression that digital assets other than bitcoin lack in size and industry-specific purpose compared to components of other asset classes such as equity markets. Figure 1 below compares the market caps of similarly sized constituents of the S&P500 Index to those of prominent crypto assets ex-BTC, 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 (ex-BTC) Crypto Assets vs. S&P 500 Constituents Smaller than ETH
Not only do the stocks of certain well-known companies highlighted above resemble the top 25 crypto assets in size (ex: Solana has a market cap similar to that of 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 sparse compared to the number of stocks, these crypto assets alongside the market’s new and innovative crypto projects are likely to continue expanding the size and breadth of the asset class even further over time.
Constructing diversified digital asset portfolios for the long-run
Taking a binary “bitcoin vs. alts” approach to digital asset investing may forgo portfolio construction benefits both within crypto investments and across your overall asset allocation. Obtaining thoughtfully constructed, diversified, and intentional exposure to all crypto 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 larger number of return sources within your broader asset allocation. Given the fast-changing, innovative nature of the digital asset landscape, it is crucial to construct crypto allocations that can adapt alongside the breadth of the asset class. This can be accomplished by adopting a process to choose the universe of assets to include in your portfolio, adjusting this universe over time, and allocating sensibly to these assets via either passive or active management. Embracing the broader crypto economy as an asset class within your investment portfolio means allocating to digital assets via strategies that are built for the long-term.
Conclusions for an evolving asset class
Focusing on bitcoin vs. “everything else” may obscure the already meaningful and fast-growing footprint of many crypto assets and could cause investors to miss out on longer-term portfolio benefits associated with comprehensive investment within the asset class.
