For a long time, there has been a view in the market that most active stock pickers tend to underperform ordinary index funds over the long term. In the cryptocurrency space, this phenomenon may be even more extreme. Some analyses suggest that the vast majority of tokens may eventually go to zero in value, or fail to outperform Bitcoin (BTC) and Ethereum (ETH). Currently, these two major cryptocurrencies already account for the vast majority of the total cryptocurrency market capitalization.
This raises an asset allocation question worth considering: since Bitcoin and Ethereum have long been the largest and most successful cryptocurrencies, is it still necessary for investors to allocate funds to other digital assets?
Bitcoin’s role in a crypto portfolio is as a scarce store of value. Currently, spot Bitcoin ETFs hold 6.2% of all issued Bitcoin, while corporate treasuries hold about 4%. These buyers tend to hold for the long term rather than trade frequently for short-term profits. Their behavior in itself demonstrates recognition of Bitcoin’s value.
Ethereum, on the other hand, is more like a broad bet on everything outside of Bitcoin within the cryptocurrency space. Data shows that Ethereum hosts 54% of the total value locked in decentralized finance across the network, with its various protocols locking in $45.3 billion. In addition, Ethereum also accounts for approximately 65% of tokenized real-world assets (such as stocks and bonds) and the vast majority of stablecoin issuance. Holding Ethereum, the underlying network, provides exposure to a wide range of application areas without having to pick potential winners among hundreds of competing applications—most of which may ultimately prove unsustainable.
On the surface, allocating to cryptocurrencies other than Bitcoin and Ethereum might seem like a smarter form of diversification. But in practice, this often means shifting from proven assets to more speculative bets, which typically perform very poorly during market downturns.
This does not mean that investors are limited to a portfolio of just two tokens. However, it is important to recognize that straying from the mainstream path to buy other tokens is more likely to lead to losses than sudden wealth.
When constructing a specific portfolio, an allocation of 80% Bitcoin and 20% Ethereum is a feasible starting point. The higher weighting of Bitcoin reflects its relatively lower volatility, stronger institutional buying support, and scarcity. The position in Ethereum provides investors with exposure to potential future trends, whether tokenized treasury bonds, stablecoin payments, payment ecosystems for AI agents, or other innovations yet to emerge.
Once the allocation is set, rebalance once a year, allowing the two assets to work their magic over time. If investors feel tempted to buy other tokens, especially assets outside the major cryptocurrencies, it is advisable to keep the position very small until there is evidence that the investment thesis is playing out.
Summary: Bitcoin focuses on value storage, while Ethereum provides broad coverage of decentralized finance and tokenized assets. Although diversification may seem theoretically more attractive, in practice, most tokens carry a high risk of long-term underperformance or even going to zero. Therefore, for most investors, a “two-coin portfolio” dominated by Bitcoin and Ethereum, complemented by annual rebalancing, represents a more robust strategy.
