Crypto for Advisors: The case for diversifying beyond bitcoin and ether

You’re reading Crypto for Advisors, CoinDesk’s weekly newsletter that unpacks digital assets for financial advisors. Subscribe here to get it every Thursday.

In today’s newsletter, Glenn Williams Jr, from ProShares,explains why investors are looking beyond bitcoin and ether to manage concentration risk using multi-asset indices.

Then, in “Ask an Expert,” we examine key institutional trends and the growing preference for spot ETFs.

The cryptocurrency market is growing rapidly, with new technologies and networks emerging throughout the ecosystem every day. While bitcoin and ether remain the most widely known crypto assets, they represent just two among thousands of other cryptocurrencies. As of the time of writing TradingView puts the total crypto market cap at roughly $2.5 trillion, spanning a wide range of uses and applications across the crypto ecosystem. For investors seeking exposure to this evolving asset class, focusing on one or a few cryptocurrencies can mean missing opportunities across the broader market.

That distinction has become increasingly important as the crypto market matures. Bitcoin has largely established itself as the market’s primary store-of-value asset, while ether remains closely associated with smart contracts and decentralized applications. Beyond those two assets, however, networks have emerged targeting everything from faster transaction settlement and decentralized finance to interoperability, data infrastructure and other applications. Put differently, the crypto market is increasingly becoming a collection of different technologies and use cases rather than simply a collection of alternatives to bitcoin.

Those differences also mean that market leadership can change over time. As we have seen during previous crypto cycles, periods dominated by bitcoin performance can eventually give way to broader participation across the asset class. That does not necessarily mean that smaller cryptocurrencies will outperform bitcoin or ether. It does, however, mean that a portfolio concentrated in the two largest assets may have limited exposure if investor interest broadens elsewhere.

How a multi-asset index addresses concentration in crypto

The CoinDesk 20 Index was designed to provide diversified exposure to the crypto asset class through a rules-based index of 20 of the largest and most liquid cryptocurrencies. The index excludes memecoins, stablecoins and certain other crypto assets and it reconstitutes quarterly to capture changes in the market.

Importantly, the index is designed not only to provide broader exposure across the crypto market, but also to limit concentration in its largest assets. Bitcoin and ether represent a large share of total crypto market capitalization, meaning a traditional market-cap-weighted index would be dominated by those two assets.

The CoinDesk 20 Index addresses that concentration through a modified market capitalization weighting methodology. The index applies:

These caps limit concentration in a single crypto asset and allow other major cryptocurrencies to play a larger role in the index.

Without these caps, the index would largely reflect the performance of bitcoin and ether alone. By limiting concentration in the largest assets, the CoinDesk 20 Index creates more balanced exposure across a wider set of cryptocurrencies.