In today’s newsletter, ProShares’ Glenn Williams Jr writes about the growing growth of cryptocurrency investing beyond Bitcoin.
Then, Recall Labs’ Michael Sena answers questions about portfolio construction and diversification in Q&A with the Experts.
– Sarah Morton
Investors are broadening their cryptocurrency horizons
As the number of cryptocurrencies increases, so does investor interest in a wider range of investments. Starting with a single transaction in 2009, the crypto ecosystem has grown to support millions of daily transactions today, and the market capitalization of cryptocurrencies has grown from essentially zero to over $3 trillion.
Bitcoin was the core asset in the early days of cryptocurrency and is still often viewed as representative of the entire asset class. Although Bitcoin currently accounts for nearly 60% of global cryptocurrency value, the scope of cryptocurrencies is rapidly expanding, with a large number of new digital assets taking market share and investor attention.
the rest rise
Since 2023, the market capitalization of cryptocurrencies excluding Bitcoin has increased by 175%. Ethereum, the world’s second-largest crypto asset, has grown 142% during this period. At the same time, use cases for cryptoassets are evolving at a breakneck pace. While Bitcoin may be viewed as a store of value, other crypto-assets offer use cases such as decentralized lending.
Investors are also considering structural differences in the digital asset space. While some digital assets host their own blockchain (e.g. Bitcoin, Ethereum, Solana), others are built on top of existing blockchains, such as Uniswap and Aave. This distinction alone affects everything from governance rights to potential cash flows. Simply put, the diversity of crypto assets changes every day, and exposure to just one (or even two) assets limits exposure to the entire asset class.
Cryptocurrency market capitalization, excluding Bitcoin
Source: TradingView, January 1, 2023 – January 1, 2023 data to January 27, 2026.
An indexing method that adapts to the development of the times
Indexes such as the CoinDesk 20 Index (CD20) are designed to provide investors with broad and diversified exposure to cryptocurrencies as a whole. As capital flows into digital assets, performance differences among index constituents are likely to widen.
The possibility of rotation within cryptocurrencies can be viewed as similar to sector rotation in traditional finance. For example, the correlation between CoinDesk 20 constituents and U.S. equities remains volatile, with ebbs and flows reflecting an asset class that is still maturing. Still, the correlation between cryptocurrencies and the stock market has been modest for a long time.
Measuring the performance of the 20 largest digital assets by market capitalization (excluding stablecoins and other tokens), CD20 currently accounts for 90% of the total market share of crypto assets. Eligibility is determined by ranking of the largest digital assets and is guided by liquidity, custody and exchange listing requirements. Restructure and rebalance on a quarterly basis to keep up with changes in the crypto asset class. Additionally, the CoinDesk 20 methodology imposes a 30% cap on its largest assets and a 20% cap on all other assets to limit concentration on any single coin.
Benchmarks are important
As with any emerging asset class, establishing a benchmark is important. Over time, investors have developed a level of comfort with them and refer to them on a daily basis. In my opinion, CoinDesk 20 is built to do the same thing for digital assets, organizing their inherent (but sometimes unrealized) diversification into liquid and investable exposure units.
This information does not constitute investment advice. Any forward-looking statements contained herein are based on ProShare Advisors LLC’s current expectations. However, whether actual results and developments will conform to ProShare Advisors LLC’s expectations and projections is subject to a number of risks and uncertainties, including general economic, market and business conditions; changes in laws or regulations or other actions taken by governmental authorities or regulators; and other world economic and political developments. ProShare Advisors LLC assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investing involves risks, including possible loss of principal.
– Glenn C. Williams, Jr., CMT, ProShares Manager and Investment Professional
Ask the experts
Q: In today’s cryptocurrency market, what does meaningful diversification actually look like beyond simply holding multiple coins?
Meaningful diversification in the cryptocurrency space is not about collecting coins, but about understanding the risks. If everything in your portfolio moves together, then you are not diversified and are simply exposed to the same cycles in different packages. True diversification means thinking beyond the price chart, making necessary investments across categories such as infrastructure, decentralized finance (DeFi), real-world assets and digital commodities, and combining different business models that generate sustainable value.
It also means diversification how do you operate. Custody solutions, liquidity providers, exchanges and the regulatory environment all influence outcomes as much as the assets themselves. The goal is to balance innovation and stability, achieving growth while protecting capital.
Diversification is not a numbers game but rigorous risk management in complex markets.
Q: As the correlation between cryptocurrencies and traditional assets changes, how should investors reconsider diversification in a more macro-driven environment?
Investors must realize that cryptocurrencies are now part of the broader financial system. As markets mature, digital assets will be affected by the same forces as traditional assets: interest rates, liquidity, geopolitics and regulation. Therefore, diversification must start with the macro, not with a list of tokens.
The key question is no longer “how much assets do I own?” but “what risks do I face?” Bitcoin, stocks, and tech can all move together when global liquidity tightens. True diversification means balancing risk factors: inflation sensitivity, yield risk, geography and the regulatory environment.
Portfolios should be built around strategies. Combining liquid assets with income-generating operations and real-world exposure creates resilience in relevant markets for better and stronger survival. This is exactly what we at BTF do.
Q: During times of volatility, where have you seen investors most often misunderstand risk when trying to diversify into crypto?
The most common mistake is to confuse activity with diversity. Investors buy more tokens, more chains, more stories, assuming they have reduced their risk. In fact, they usually just multiply the same exposure. During periods of volatility, correlations tend toward 1, and portfolios that look diversified on paper collapse together. Liquidity risk is also widely misunderstood. Assets that exhibit liquidity in calm markets may not be able to exit when conditions change, which most people expect to happen until conditions change.
Operational risk is another blind spot. Custody providers, exchanges, stablecoins, and counterparties may be more important than the assets themselves. True diversification is not about owning more assets, but about understanding what truly protects capital during stressful situations. Anyone who understands and strategizes accordingly is bound to win.
Q: From a financial strategist’s perspective, many still view Bitcoin as representative of the entire cryptocurrency market. How does diversification of infrastructure, issuance models and risk profiles actually protect capital?
Bitcoin is the foundation of cryptocurrencies, but that is not all of cryptocurrencies. From a financial perspective, treating one asset as a substitute for an entire industry is an incomplete idea.
Cryptocurrency today is an ecosystem with multiple sources of returns. Infrastructure incurs recurring costs. Tokenized assets are tied to real-world economies. Different issuance models create significantly different risk profiles. Active strategies behave differently than passive exposure. These elements do not move in sync, especially in volatile markets.
Diversification protects capital when risk is distributed over how value is generated. A professional approach goes beyond a single asset and builds exposure to the wider mechanics of the industry.
– Michael Sena, Chief Marketing Officer, Recall Labs
