Bitwise CIO says ‘Bitcoin is king’ but history favors a diversified crypto basket, drawing parallel to 2004 internet investing

While bitcoin has largely dominated the current cycle amid the success of exchange-traded funds and a corporate accumulation race, Bitwise Chief Investment Officer Matt Hougan drew a parallel with Google in 2004, arguing the case for diversified crypto exposure.

“Bitcoin is the king of crypto assets — the largest, most liquid, and most established. In my opinion, it’s akin to ‘digital gold’ and is the only crypto asset with a shot at being a globally important currency,” Hougan wrote in his latest note to clients. Yet, he thinks most investors should still own other crypto assets, pointing to Ethereum’s recent resurgence — up 40% during the past week alone — causing investors to ask if they should diversify beyond bitcoin.

Earlier on Wednesday, analysts at Bernstein argued that three factors were behind the Ethereum rally: a stablecoin and tokenization boom, Layer 2 institutionalization, and an ETH short unwind as narratives shift beyond store of value use cases. Hougan added the successful implementation of Ethereum’s Pectra upgrade and a general risk-on shift in the market were also drivers.

Winding back to 2004, search was the dominant business for those wanting to invest in the internet post the dot-com crash, and Google was king, Hougan recalled. “You could have said: The internet is going to be massive. I’m going to buy the dominant player in its most dominant market,” he wrote. “This would have been a great strategy. Over the past 20 years, Google is up 6,309%.”

However, the internet is a general-purpose technology, used for many things beyond search, such as retail, video, and B2B software. So, in 2004, instead of just buying Google, investors could have also bought the leader in each of these verticals — Amazon, Netflix, and Salesforce — Hougan said.

The result? While Google did exceptionally well and is now one of the most valuable assets in the world, the other category leaders outpaced the tech giant — with the best performer turning out to be Netflix. That wasn’t obvious in a 2004 world where physical Blockbuster stores were still prominent, the Bitwise CIO noted.

Performance of tech giants, 2004-present. Image: Bitwise.

Blockchains are a general-purpose technology, too

Blockchains, like the internet, are also a general-purpose technology, Hougan argued — a foundational layer you can build almost anything on. Some blockchains aim to be better money, like Bitcoin, while others, such as Ethereum, Solana, and Avalanche, enable programmable networks for moving real-world assets. They power entirely new applications such as DeFi or DePIN, serve as middleware, like Chainlink, or support the broader ecosystem through traditional companies like Coinbase, Circle, or Marathon Digital, he said.

Much like the early days of the internet, the full potential of blockchains likely hasn’t even been imagined yet, Hougan added, noting that because different blockchains serve different roles, their long-term investment returns vary significantly — pointing to their relative performance over the past five years.

Crypto Asset Performance, 2020-2024. Image: Bitwise.

“Which will be the best performer between now and 2030? Good question!” he said.

‘Don’t fret about picking winners; invest in the big picture’

This doesn’t mean everyone should invest in crypto assets beyond bitcoin, Hougan emphasized.

If an investor believes blockchains are primarily useful as a hedge against fiat currency debasement, then Bitcoin is the clear choice, in the Bitwise CIO’s view. It’s the only crypto asset with a clear shot at being “money,” and it’s unlikely any competitor will surpass it in that role, he said.

But if they see blockchains as a broader technological shift — one that could move nearly all of the world’s assets onchain — then it makes sense to own a diversified set of crypto assets: Bitcoin, Ethereum, Solana, Chainlink, and others, he added. 

However, over the past 20 years, actively managed U.S. equity funds have underperformed their benchmark indexes 97% of the time, Hougan noted. “In a field as fast-moving, vast, and unpredictable as crypto, a statistic like that is worth coming back to. My advice: Don’t fret about picking winners; invest in the big picture.”

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