How to Use Crypto ETFs as Part of a Diversified Portfolio

Let's address the elephant in the room: Bitcoin (CRYPTO: BTC) is down 48% from October's 52-week highs as of July 20.

For longtime crypto observers, this drop feels familiar. Digital assets have suffered several drawdowns of this magnitude, and the decline in 2026 isn't even unusual by historical standards. If anything, it's milder than the first three multiyear crypto winters.

Each time Bitcoin prices plunge, many obituaries are written. Each time, the asset has eventually recovered to new highs. The rumors of Bitcoin's death have been exaggerated so far. Past performance doesn't guarantee future results, of course, but the pattern does suggest that dramatic price cycles are a predictable feature of this asset class rather than a sign of imminent extinction.

The more interesting development isn't the price action; it's how you can now participate without feeling like you need to minor in cryptography.

The ETF advantage

Two exchange-traded funds (ETFs) stand out for investors seeking straightforward crypto exposure: iShares Bitcoin Trust (NASDAQ: IBIT) for Bitcoin and iShares Ethereum Trust (NASDAQ: ETHA) for Ethereum (CRYPTO: ETH).

These spot-priced crypto ETFs hold the underlying crypto assets directly and trade on traditional stock exchanges. For practical purposes, this means you can buy crypto exposure through the same brokerage account you use for stocks and index funds. No separate crypto exchange account required. No worrying about jargon like "custody solutions" or "seed phrases."

The ETF structure also provides regulatory oversight that direct crypto ownership lacks. These funds operate under SEC disclosure requirements, with institutional-grade custody from established financial players. Most stock investors already know the iShares name, managed by financial colossus BlackRock (NYSE: BLK). For investors whose primary concern has been the operational risk of holding crypto directly, this structure simplifies the process of buying, selling, and owning crypto.

How much is appropriate?

Wall Street has opinions on how much to hold, and they're surprisingly consistent.

J.P. Morgan says 1% is reasonable. Bank of America suggests 1% to 4%. BlackRock recommends 1% to 2%. Morgan Stanley goes with 0% to 4%, depending on your risk appetite. Citigroup lands around 5%, though it suggests splitting exposure between Bitcoin and gold.

Notice what's missing from these recommendations? Nobody's suggesting you convert your entire retirement savings account to Bitcoin. The institutional view treats crypto as a small portfolio addition, not a core holding.

Starting at 1% seems sensible for newcomers. It's enough to learn how crypto volatility actually feels in your portfolio, while avoiding the kind of stress that leads to panic selling at the worst possible moment.

Image source: Getty Images.

Surviving the crypto news cycle

Crypto headlines can make Wall Street's news look calm and measured by comparison. Let's consider what deserves your attention as a crypto investor.

Regulatory developments carry real weight. SEC actions, Congressional legislation, and international regulatory frameworks can affect how these assets trade and how institutions engage with them. The shift toward clearer regulation has been a meaningful tailwind for institutional adoption.

Institutional adoption trends signal how traditional finance views the digital asset class. When pension funds, endowments, and corporate treasuries add Bitcoin to their holdings, it suggests growing acceptance of crypto as a legitimate portfolio component.

Network fundamentals matter more than daily price movements. For Bitcoin, metrics like hash rate indicate network security. For Ethereum, development activity and transaction volume reflect the health of its ecosystem.

The goal is staying informed without getting swept up in the daily drama. Long-term investors don't need to track every price swing or respond to every bombastic headline. Feel free to skip headlines about celebrity endorsements, meme coins, short-term price targets, and most of the crypto sector's breathless commentary.

The diversification argument

Why bother with crypto at all? The honest answer is that nobody knows with certainty whether these assets will prove valuable over the next decade. But a few observations seem reasonable.

Crypto doesn't move in perfect lockstep with stocks and bonds. This imperfect correlation suggests potential diversification benefits, even if the relationship isn't always predictable.

Bitcoin's supply is mathematically fixed. There will never be more than 21 million coins. Whether scarcity translates to value is debatable, but the scarcity itself is not.

The infrastructure has grown up. Major financial institutions now offer custody services, regulatory frameworks have developed, and the "Wild West" era has given way to something more structured. The space still carries risks that traditional assets don't, but the operational chaos of early crypto has largely faded.

Fitting crypto ETFs into a long-term strategy

If you've read this far and haven't been scared off, the path ahead is straightforward.

• Open or use your existing brokerage account.
• Decide on a modest allocation, probably in that 1% to 2% range at first.
• Buy shares of IBIT, ETHA, or both.
• Then do the hardest part: Sit tight through the inevitable volatility that follows.

Crypto isn't for everyone. The drawdowns are real, the uncertainty is genuine, and the asset class remains young enough that surprises are likely. But if you've been curious about digital assets while remaining skeptical of crypto exchanges and self-custody, ETFs offer a reasonable middle ground. It's your familiar stock brokerage, or even your retirement portfolio, with just a hint of crypto flavor in it.

Just remember that 48% drawdown. In crypto terms, that's practically a normal Tuesday night. If volatility scares you, crypto may not be your best bet in 2026.

JPMorgan Chase is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Anders Bylund has positions in Bitcoin, Ethereum, iShares Bitcoin Trust, and iShares Ethereum Trust. The Motley Fool has positions in and recommends Bitcoin, BlackRock, Ethereum, JPMorgan Chase, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.