These Cryptocurrencies Have Become Wall Street Favorites and Deserve a Place in Your Portfolio

Source The Motley Fool

Key Points

  • Of the top 20 spot crypto ETFs, 12 are dedicated to Bitcoin and six to Ethereum.

  • Bitcoin has the properties of both a risk-on and a risk-off asset, making it a unique portfolio diversifier.

  • Ethereum gives investors exposure to the fastest-growing areas of DeFi, including stablecoins and asset tokenization.

  • 10 stocks we like better than Bitcoin ›

There are tens of thousands of different cryptocurrencies to choose from, but from the perspective of Wall Street and institutional investors, there are only two: Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH).

Of the top 20 spot cryptocurrency exchange-traded funds (ETFs), as ranked by assets under management (AUM), 12 are dedicated to Bitcoin, and six are dedicated to Ethereum. The only other cryptocurrency that makes an appearance in the top 20 is Solana (CRYPTO: SOL), with two spot crypto ETFs.

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Bitcoin

Bitcoin is by far the most dominant cryptocurrency by market cap, accounting for almost 60% of the crypto market's total value. So it's no surprise that Bitcoin ETFs lead the way in terms of how much money they have attracted from investors.

The clear leader among Bitcoin ETFs is the iShares Bitcoin Trust (NASDAQ: IBIT), with about $70 billion in assets under management. Overall, seven of the top 10 ETFs are Bitcoin-related, giving investors plenty of options to gain exposure to Bitcoin.

Trader with laptop on Wall Street.

Image source: Getty Images.

So why is Bitcoin so popular? The answer is easy: Bitcoin is the rare asset that offers a mix of upside potential combined with downside protection. For good reason, asset management giant BlackRock (NYSE: BLK) has referred to Bitcoin as a unique portfolio diversifier. Bitcoin has the properties of both a risk-on and a risk-off asset, making it truly distinctive in the investment world.

For much of the past decade, Bitcoin has been the top-performing asset in the world. A decade ago, Bitcoin traded at just $600. Today, it trades at $85,000. And just last year, Bitcoin rose as high as $126,000. So it's not overstating matters to say that Bitcoin has truly exponential upside potential.

Even better, Bitcoin has historically been uncorrelated with any major asset class. That's a key factor to keep in mind when diversifying a portfolio. The last thing that you want to do is put all your eggs in one basket, and Bitcoin gives investors a way to avoid that. It can quite literally zig when other assets zag.

Ethereum

Ethereum is no slouch, either, for attracting investor inflows. Four Ethereum ETFs, led by the iShares Ethereum Trust (NASDAQ: ETHA), now rank among the top 10 spot crypto ETFs.

Due to its prowess in decentralized finance (DeFi), Ethereum has become the go-to blockchain for Wall Street investors when launching new projects. In fact, Tom Lee, chairman of Ethereum treasury company Bitmine Immersion Technologies (NYSE: BMNR), refers to the crypto as the "preferred choice for Wall Street," due to its well-developed DeFi ecosystem.

Among fast-growing areas of DeFi, such as asset tokenization (in which ownership of assets such as stocks and bonds is converted into crypto) and stablecoins, Ethereum is the clear leader. That sets Ethereum up well for future growth and gives institutional investors an easy way to gain exposure to the future of blockchain finance.

Although Ethereum has historically played second fiddle to Bitcoin in market performance, there have been brief periods when Ethereum has outpaced Bitcoin.

For example, during the first DeFi boom of 2020-2021, Ethereum clearly outperformed Bitcoin. In 2020, Ethereum was up 472%, while Bitcoin gained 304%. In 2021, Ethereum skyrocketed by 395%, while Bitcoin rose only 59%.

Other cryptocurrencies to watch

In addition to Bitcoin and Ethereum, a handful of other cryptocurrencies now have spot crypto ETFs. Chief among them are Solana and XRP (CRYPTO: XRP). The latest addition to the mix is Zcash (CRYPTO: ZEC), which has already attracted $500 million in investor capital via the new Grayscale ZCash ETF (NYSEMKT: ZCSH).

But here's the thing: None of these cryptocurrencies even comes close to Bitcoin and Ethereum in terms of the money and attention that they command from Wall Street. Although $500 million is a big number, it's nowhere near the $100 billion that the Bitcoin ETFs pulled in during their first 12 months.

If you're thinking of adding crypto to your overall portfolio, the clear starting point is Bitcoin. If you're looking to diversify beyond Bitcoin, then the next obvious target should be Ethereum.

Should you buy stock in Bitcoin right now?

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Dominic Basulto has positions in Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has positions in and recommends Bitcoin, BlackRock, Ethereum, Solana, XRP, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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