Should You Be Investing in Bitcoin... or a Basket of Diversified Cryptocurrencies?

Single-crypto ETFs are all the rage in the crypto market these days. The most popular of these, of course, are the spot ETFs that invest in only Bitcoin (CRYPTO: BTC). Collectively, these spot Bitcoin ETFs have pulled in more than $100 billion from investors.

But there's just one problem here: Bitcoin is down nearly 20% for the year, and almost 45% from its all-time high of $126,000 in October. Going all in on Bitcoin doesn't appear to be the optimal investment strategy right now. Shouldn't prudent investors be seeking out exchange-traded funds that invest in a basket of diversified cryptocurrencies to provide more downside risk protection?

The merits of portfolio diversification

In theory, investing in a basket of cryptocurrencies should be a more effective strategy than going all in on just a single cryptocurrency. Read any textbook on portfolio management, and that's exactly what you'll find. Diversification is the fundamental building block of Modern Portfolio Theory. Don't put all your eggs in one basket.

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In the stock market, for example, ETFs that track the S&P 500 are extremely popular. You could just as easily find an ETF that tracks a specific industry or sector. You could choose to own a basket of small company stocks, or perhaps a basket of stocks from a different country. The goal, in each case, is to diversify away your risk by holding a broad basket of stocks.

In the same manner, there should be some diversification advantages to having a blended crypto portfolio. With that in mind, Coinbase Global (NASDAQ: COIN) has even created a crypto index -- the Coinbase 50 Index -- to track a broad group of cryptocurrencies and crypto assets.

Bitcoin vs. the major crypto indices

However, theory and practice often differ significantly in the crypto market. As of April 9, 2026, Bitcoin is down 17% year-to-date. Broader-based crypto indices are down even more. For example, the CoinMarketCap 20 Index is down 23% in 2026.

Even with all the additional diversification (owning 20 cryptos, rather than just one), investors would still be underperforming Bitcoin. And that's not even taking into account the potential management expenses of owning an ETF tied to this index.

Bitcoin vs. multi-crypto ETFs

For me, it all comes down to a single question: Can multi-crypto ETFs beat Bitcoin? If they can, then they are worth taking a closer look. If not, then I'll pass.

To illustrate this point, consider the Bitwise 10 Crypto Index ETF (NYSEMKT: BITW). It holds 10 different cryptocurrencies to help investors diversify their exposure to the crypto market. Yet, it's down 22% in 2026, nearly the same as Bitcoin.

No, diversification didn't protect investors from downside here.

Why is it so hard to outperform Bitcoin?

At the end of the day, Bitcoin still accounts for a whopping 60% of the crypto market's market cap. So any diversified fund or index that is market-weighted is going to have roughly 60% of its assets invested in Bitcoin.

Take the Coinbase 50 Index, for example. Given that it invests in a mix of 50 different cryptocurrencies and crypto assets, you might at first assume that it wouldn't hold more than a smidgen of Bitcoin. But it actually has a 50% position in Bitcoin. In order to track the crypto market, it must track Bitcoin.

And there's a second factor at work here. Most cryptocurrencies are highly correlated with Bitcoin. As Bitcoin goes, so goes the crypto market.

The easiest way to see this is with Ethereum (CRYPTO: ETH), the second-largest cryptocurrency in the world. Historically, its correlation with Bitcoin is close to 0.90. Over the past 12 months, the correlation is still a robust 0.85. That's about as close to 1 as you're going to get with two different assets.

Put another way, Bitcoin and Ethereum tend to march in lockstep. If Bitcoin is falling in price, Ethereum is likely to follow suit. You're not going to gain a lot by rotating out of Bitcoin into Ethereum.

In fact, it's extremely difficult to find any cryptocurrency that doesn't have a strong positive correlation with Bitcoin. Using data from DeFi Llama, it's possible to play around with crypto asset price correlations. And no matter which major cryptocurrency you attempt to compare with Bitcoin, you'll likely find a strong positive correlation of 0.70 or higher. In other words, it's hard to find a cryptocurrency that can zig when Bitcoin zags (and vice versa).

Takeaway lessons for crypto investors

This is not an attempt to convince you to become a Bitcoin maximalist (i.e. someone who only invests in Bitcoin). And it is not an attempt to convince you to give up portfolio diversification or multi-crypto ETFs when investing in cryptocurrency.

But to paraphrase a popular Wall Street maxim, this is not a crypto market, but a market of cryptos. It's up to you to identify the standout winners, especially during extreme market volatility. There are no easy shortcuts by simply owning the entire market. For now, I'm sticking with Bitcoin and waiting for it to pull the entire market higher.

Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.