The U.S. Securities and Exchange Commission (SEC) has approved 11 peer-to-peer (spot) Bitcoin exchange-traded funds (ETFs) and will begin trading today. This is the green light for the first peer-to-peer cryptocurrency ETF in the United States, opening the door for institutional and retail investors. It provides a regulated and simple way to access the emerging digital asset class.
Given this seismic inflection point for cryptocurrencies, it begs the question, which are the best cryptocurrencies to hold in a traditional investment portfolio?
Bitcoin is of course the oldest and best-known cryptocurrency, but its entry into the mainstream will surely draw attention to other cryptocurrencies, thus giving smart investors more choices.
Ethereum prices rose 15% to $2,608 in the past 24 hours, with market participants betting that it will be the next cryptocurrency to be approved for ETF wrapping. Ripple’s XRP token rose 7% to $0.6123.
Many expect Bitcoin to hit $50,000 within this month, and it is currently priced at $46,000, although the price has retreated after the initial surge following the approval of 11 peer-to-peer Bitcoin ETFs.
So where should practitioners in the traditional finance and cryptocurrency industries begin to invest in this exciting new space? We have all the answers.
Factors that cryptocurrency investors must consider in asset allocation
Traditional portfolios come in many different shapes and sizes, but all should be constructed with an asset allocation perspective in mind. The primary determinant of investment returns is the allocation choices made to each asset class, not the choices made within each asset class.
This means first determining the weight to give to each asset class. A typical portfolio would be allocated from the following asset classes:
stock
Bonds (Fixed Income)
commodity
real estate
cash
Alternative Investments
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Asset Allocation and Risk Tolerance from a Cryptocurrency Perspective
There are two ways to access the asset class – buying it directly or placing it in a packaged vehicle such as an exchange-traded fund, mutual fund or investment trust.
For cryptocurrency investors, holding the assets directly has been the only or primary way to include them in a portfolio, depending on the jurisdiction in which the individual or institution is based.
Pooled investment vehicles are a popular way to access financial assets because they are cheaper than, for example, buying individual shares and do not require the time and effort required to manage your own holdings.
Investors have the option of choosing from thousands of funds, and we expect Bitcoin to start showing up in more funds through fund of funds portfolios, in other words, funds that hold a basket of funds.
The exact outlines of the portfolio you want to build will depend on your risk appetite, but there are three main types of traditional portfolios:
Growth
Value
Income
Balanced
Growth portfolios focus on pursuing capital appreciation and therefore involve more risk, investments in earlier-stage companies, and sectors such as technology.
A value portfolio certainly also seeks capital appreciation, but tends to focus more on established companies with solid market positions, brand recognition, and strong revenues, but that are undervalued by the market for one reason or another.
Income portfolios overlap with value portfolios in that they include companies that pay dividends. Growth companies tend to invest all of their revenue and profits into growing their business, while established companies with a strong market position are able to return value to shareholders by paying out profits in the form of dividends.
Oil companies, for example, are big winners for dividends. Aside from stocks, bonds are the primary way investors seek to earn returns with minimal risk, and will be a major component of an income-oriented portfolio.
A balanced portfolio includes elements of capital appreciation and income, and may include other asset classes such as commodities, foreign exchange and real estate. Often referred to as a 60/40 portfolio, it was once considered the typical traditional portfolio, allocating 60,% to stocks and 40,% to bonds.
In this new era of investment management that welcomes cryptocurrencies, digital assets can be included in all of the above portfolios, although many traditionalists will continue to object to cryptocurrencies being considered a legitimate asset class.
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Cryptocurrencies can play several roles in a portfolio, depending on risk tolerance:
Growth — View cryptocurrencies as early-stage tech stocks
Value-oriented - large-cap digital assets with active and mature networks and brand influence, DeFi protocols that can generate income, and utility tokens in markets that have been proven to generate income, such as games and gambling
Yield-based - Staking-centric tokens that distribute rewards to token holders who deposit a portion of their holdings into a staking contract. For example, the Ethereum network’s native ETH token pays yield to validators, who must hold at least 32 ETH to validate transactions on its blockchain.
Balanced - Cryptocurrency has strong diversification properties as it is uncorrelated with other asset classes. However, the volatility risk that comes with holding cryptocurrencies needs to be balanced by holding a large amount of money market funds, highly rated corporate bonds, and sovereign bond funds of various maturities and denominations.
Alternative Investments – This is where the bulk of the cryptocurrency allocations are. Typically, 1% to 5% of a portfolio is allocated to speculative alternative investments. 1% of available funds invested globally could shift towards cryptocurrency assets and the returns of this asset class.
Bitcoin and cryptocurrencies more broadly can deliver strong excess returns to traditional portfolios. Indeed, if the impact of a Bitcoin ETF is as strong as the launch of the first gold ETF, the era of the “traditional” portfolio will fade.
Gold was the first asset to receive ETF treatment, providing retail investors with a cheap way to access the gold bullion market without having to worry about custody and liquidity issues.
Get access to cryptocurrencies through investment products such as ETFs
High net worth investors already have access to the Grayscale range of investment trusts, but these are closed-end vehicles that asset managers will want to turn into ETFs.
Elsewhere, particularly in Europe, there are already cryptocurrency ETFs and other exchange-traded products such as debt securities known as exchange-traded notes.
In Asia, moves to introduce cryptocurrency ETFs are underway, with Hong Kong leading the way.
There are also some laggards that cannot be ignored. In the UK, retail investors are prohibited from owning any type of cryptocurrency exchange-traded product, whether it is a trust, exchange-traded note or ETF. This runs counter to the British government's goal of making the UK a global cryptocurrency hub.
This contradiction may be resolved by the FCA changing its stance, as its current regulatory approach actually forces investors to go to unregulated exchanges to access the digital asset class, which is the opposite of its intention.
Cryptocurrency could become the asset of choice as an alternative investment in traditional portfolios
Cryptocurrencies fall into the category of alternative investments. In addition to cryptocurrencies, alternative investments include a range of investment categories that are generally speculative in nature.
They are defined by the fact that they do not easily fit into the major asset classes – that is, they are investment categories that cannot be easily classified into the major asset classes.
The components of alternative investments can include anything from stamps and vintage cars to collectibles such as art and whiskey. Today, the main alternative sectors are hedge funds and private equity, as well as asset classes such as commodities and real estate.
Going forward, we can also expect money managers and financial advisors to allocate cryptocurrencies into portfolios as part of alternative investments.
Alternative investments are considered to be on the riskier end of the investing spectrum, so an investor's risk tolerance will guide their thinking on whether to include alternative investments and how to choose them.
Alternative investments are more difficult to value than other asset classes for a number of reasons, as they will include collectibles such as stamps, art, etc. mentioned above. Cryptocurrencies are also difficult to value, not only because they are a speculative asset class, but also because they are a new technology.
This is a useful way to think about cryptocurrencies - they are much more than "currency", in fact, it is a mistake to think of them primarily as currency. Distributed networks can be applied to almost every industry, and it can be said that the fight against traditional companies has only just begun.
Of course, the disruptive impact of cryptocurrencies is most evident in the financial sector, but a look at the categories into which the 12,155 cryptocurrencies listed on data site Coingecko are divided shows the breadth of areas where peer-to-peer technology can be applied.
In short, blockchain connects consumers more closely to services or products by eliminating intermediaries that increase costs and hinder efficiency.
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Why Is the Peer-to-Peer Bitcoin ETF Fee War Heating Up?
What people often fail to appreciate when discussing a possible peer-to-peer Bitcoin ETF is that the asset management industry faces a serious business model challenge that can be summed up in the phrase “fee compression.”
Passive investing vehicles such as ETFs and index funds are taking away the lucrative fees that asset managers earn from active fund management. And one of the few growth areas in the industry that has been able to achieve comparable revenue growth is alternative investing.
Against this backdrop, cryptocurrencies have become more attractive to asset managers. But before profits can be made from crypto collective investment vehicles, such as ETFs, there is first a battle for market share.
The fee wars were already underway before the first peer-to-peer Bitcoin ETF launched. Bitwise was the first to reduce fees to 20 basis points, after which BlackRock outperformed the market with an initial fee of 0.30%. In response, BlackRock reduced its fee to 0.20%, applicable to the first $5 billion of asset inflows within 12 months of initial formation. WisdomTree and Bitwise announced yesterday that they would completely eliminate fees for the first $1 billion of inflows.
As analysts pointed out to Bloomberg, several years of price wars seem to be unfolding in weeks and days.
It’s worth noting that one of the biggest names in ETFs and passive investing, Vanguard, is not in the running for a Bitcoin ETF, so not everyone in the industry sees cryptocurrency funds as an opportunity that can’t be missed.
5 Best Cryptocurrencies to Hold in a Traditional Portfolio — Expert Opinion
We asked cryptocurrency experts with different perspectives in the industry for their picks for the 5 best cryptocurrencies to include in a traditional portfolio. Here are their responses.
Sergey Klinkov, Strategy Director at Finery Markets
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With the approval of an ETF, there is hope that interest and support for digital assets will be reignited. The approval could also change the way people think about cryptocurrencies, which have suffered a series of events over the past year, such as the FTX debacle and a focus on quick profits.
Although the market has priced in the approval of a Bitcoin ETF, there has been some hesitation in recent days, leading to increased volatility. However, in the long run, approval is inevitable.
The main question now is which other coins will be the next choice for inclusion in the ETF after Bitcoin, with Ethereum being the most likely.
As for the rest, they could be large-cap base-layer coins like Solana, Cardano, or Avalanche. However, I don’t foresee any other cryptocurrencies getting ETF approval in the near future. Financial authorities usually need time to assess the impact of their decisions and how the market will react.
David Kemmerer, CEO of CoinLedger
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Although this approval may mean that the cryptocurrency market has “arrived,” it does not mean that the risks of investing in cryptocurrencies will disappear. I think many people will still be rightfully cautious about this, especially for new or less risky investors, and the priority will be to invest in safer and more reliable cryptocurrencies.
For example, Ethereum. It is currently second only to Bitcoin and has proven to be a good long-term investment. Although it has also experienced periods of volatility (almost all cryptocurrencies have volatility), it is relatively stable compared to other cryptocurrencies and has good future prospects.
James Lawrence, CEO and founder of NFTY labs
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My recommended allocation for a balanced portfolio in 2024, focusing on established and emerging digital assets and Layer 1, is as follows:
1. Bitcoin (BTC): 35% — the cornerstone of the market, stability and liquidity.
2. Ethereum (ETH): 30% — A leader in decentralized applications and smart contract innovation.
3. Solana (SOL): 12% — Layer1 is known for fast transactions and efficiency in DeFi and Web3, and the ecosystem continues to grow.
4. Cosmos (ATOM): 12% — Interoperability between blockchains in its ecosystem, enhancing connectivity between blockchains.
5. Sei Network: 11% — A promising and evolving Layer 1 blockchain, especially in the digital asset trading/DeFi space.
This allocation strategy aims to strike a balance between market stability and the potential growth of emerging networks to meet the needs of active and passive investors interested in the current market environment and future progress in the cryptocurrency space.
Daron Bennett, CEO and co-founder of OnGo
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Top 5 Cryptocurrencies for Traditional Investments:
1. Bitcoin (BTC): As the gold standard of cryptocurrencies, it leads in market capitalization and popularity. It is expected to be included in ETFs, making it an important investment variety.
2. Ethereum (ETH): The backbone of the DeFi and NFT ecosystem. The Ethereum 2.0 upgrade will transition to a more efficient proof-of-stake model, greatly enhancing its investment appeal.
3. Binance Coin (BNB): It is essential for a large cryptocurrency exchange and Binance Smart Chain, providing utility in terms of transactions and fees. Its destruction mechanism provides a layer of potential value for value growth.
4. Cardano (ADA): Known for its research-driven and environmentally friendly characteristics. It has long-term growth potential, especially as its platform further develops towards dApps and smart contracts.
5. Solana (SOL): It stands out for its excellent transaction speed and low cost, solving the scalability problem. Its innovative technology makes it a strong competitor in the market.
All in all, these five cryptocurrencies represent a combination of stability, innovation, and growth potential, making them strong candidates for inclusion in a diversified portfolio. However, always balance these choices with the volatility and risks inherent in the cryptocurrency market.
Michael Schmied, Chief Financial Advisor, Kredite Schweiz
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Here are five cryptocurrencies to consider for inclusion in a traditional portfolio, each suited to different investor profiles and goals:
1. Bitcoin (BTC)
Allocation: Suitable for conservative cryptocurrency investors seeking exposure to the most established cryptocurrencies.
Why: Bitcoin is often viewed as "digital gold" and can be used as a hedge against inflation. Its market leadership and widespread acceptance make it a relatively safe cryptocurrency investment.
2. Ethereum (ETH)
Allocation: Suitable for medium-risk investors seeking growth.
Rationale: Ethereum’s widespread adoption in decentralized applications and smart contracts makes it a good prospect for long-term growth. Its upcoming Ethereum 2.0 transition, which aims to improve scalability and energy efficiency, further enhances its investment appeal.
3. Binance Coin (BNB)
Allocation: Suitable for investors seeking a utility token with a strong ecosystem.
Rationale: BNB is the driving force of the Binance ecosystem, one of the world's largest cryptocurrency exchanges. Its utility in numerous application areas, including reducing transaction fees on the Binance platform, gives it real value beyond speculative trading.
4. Chainlink (LINK)
Allocation: Investors seeking to diversify their cryptocurrency portfolio into oracle networks.
Why: Chainlink is a leading oracle network that connects smart contracts with real-world data. Its unique role in the blockchain ecosystem can provide diversified exposure beyond standard crypto assets.
5. Cardano (ADA)
Allocation: Investors seeking research-driven and sustainable blockchain platforms.
Why: Cardano differentiates itself by emphasizing sustainability and scalability. Its peer-reviewed research-based approach and commitment to developing countries may attract socially conscious investors.
Key considerations
a) Diversification - As with any investment, diversification is critical. These cryptocurrencies offer different value propositions and risk profiles.
b) Volatility - Cryptocurrency investments can be extremely volatile. Depending on your risk tolerance, only a portion of your portfolio should be allocated to these assets.
c) Regulatory Environment – Keep an eye on the changing regulatory environment as it can have a significant impact on the cryptocurrency market.
In my consulting, I emphasize that while cryptocurrencies offer exciting opportunities, investors should approach them with caution and clearly understand their unique characteristics and risks. A balanced portfolio approach combined with ongoing market analysis is essential to integrating cryptocurrency investments into traditional portfolios.
Eugene Musienko, CEO of Merehead
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The approval of a peer-to-peer cryptocurrency ETF will open the door to both institutional and retail investors. This is a huge opportunity for the cryptocurrency market. But among the many coins, a question will arise, which is the best investment? No matter what type of portfolio you choose - conservative, balanced or high-risk, in any case, you need to start with Bitcoin and Ethereum as a foundation.
1. Bitcoin (BTC) hedges risk and minimizes losses when its price falls. On January 3, 2024, Bitcoin fell by 4.7%, while XRP fell by 7.7% - this is why Bitcoin should appear in your portfolio and account for 15% to 40% of the total investment.
2. Ethereum (ETH) is first and foremost a powerful technology. A large number of decentralized applications and smart contracts are built on the ERC-20 protocol. Tron (TRX) and BNB use forks of Ethereum. This shows the real-world application of cryptocurrency in the industry and its value to the community. The high market capitalization and value make ETH a desirable asset in every cryptocurrency portfolio, which should account for 10% to 35% of the total investment.
Bitcoin and Ethereum tend to appear in most investors' portfolios. While it's worth considering a few coins in your portfolio that can provide you with a steady income, these coins are relatively more volatile in the market and their relatively high market capitalizations are also the reason. When choosing small-cap cryptocurrencies, be sure to consider their unique selling points and expect that you could lose all your capital.
The following coins can be added to the above expert-selected alternative portfolios traded on large-cap exchanges with the greatest liquidity due to their proven market adaptability and current strong market position.
1. Bitcoin Minetrix (BTCMTX) – used to tokenize Bitcoin mining revenue
Bitcoin Minetrix is a tokenized Bitcoin cloud mining project based on Ethereum. Currently in the pre-sale stage, the project links the claim of a portion of Bitcoin mining revenue to cloud credits obtained through the staking process by activating "stake mining", which is controlled by smart contracts and a front-end advanced dashboard, which can be used on desktop and mobile devices.
2. Sponge V2 - Focus the game on SPONGE V2, which has increased by 1000% in the past month
Sponge launched a few months ago and delivered 100x returns to early presale investors. Now, the meme coin is transitioning to the gaming-focused SPONGE V2 token. Buy and stake V1 tokens into the new V2 contract and wait for the team to switch the bridge from V1 to V2 for another 100x opportunity.
The current annualized rate of return is 357%. The coin recently retested its all-time high on the back of the bridge news, so imagine what will happen when the bridge is activated. TRON founder Justin Sun is a major shareholder of SPONGE, don’t let him have the fun (and investment growth) alone.
3. Meme Kombat (MK) – The king of all memes takes battle arena games to the next level
Meme Kombat brings meme characters together in a fighting arena where players can bet on the outcome of the matches. Whether you like Peppa or Dogecoin, spongebob or Shiba Inu, this is it. There’s a lot to like about this project, which combines three of the hottest areas in the cryptocurrency industry - meme coins, games, and gambling. It’s still in presale, so you can get involved and maximize its risk-reward potential while you’re still getting started.
4. Bitcoin ETF Token (BTCETF) – The Cheapest and Most Profitable Way to Ride the Bitcoin ETF Investment Story
Bitcoin ETF tokens are designed based on the approval of the Bitcoin ETF. At various stages of the Bitcoin ETF life cycle, such as approval, start of trading, total asset management, trading volume and other milestones, its innovative destruction mechanism will be triggered and transaction taxes will be reduced at various stages. If you want to get the most out of the investment theme from cryptocurrencies, this may be a cheap entry point to get at least 10 times the return.
5. TG.Casino (TGC) — GameFi is booming, and this new Rollbit is the most premium licensed casino on Telegram
The cryptocurrency gambling industry is booming. This industry fully leverages the advantages of cryptocurrency, which is able to provide a trustless network where transparency and security are built into blockchain technology. However, TG.Casino is a Telegram priority, which utilizes the easy-to-access capabilities of bots running on the Telegram messaging application platform.
Telegram is growing at a rapid pace and TG.Casino is the first licensed gambling platform on the app. Its ecosystem has a buyback mechanism that surpasses competitors such as Rollbit. Another 100x opportunity, presale just completed.
New Cryptocurrency Mining Platform - Bitcoin Mining
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Audited by Coinsult
Decentralized and secure cloud mining
Earn Free Bitcoin Every Day
The native token currently on presale — BTCMTX
Staking Rewards - Annualized Rate of Return of More Than 100%
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