Crypto’s Landscape Post U.S. Presidential Election
In the aftermath of the U.S. presidential election, the headwinds facing the crypto market appear to have eased significantly. Since early November, Bitcoin has surged to $100K, buoyed by regulatory victories. Notable developments include the appointment of the crypto-friendly Paul Atkins to succeed Gary Gensler as SEC chair, the designation of David Sacks as the new White House “AI and Crypto Czar,” and Congressman French Hill’s leadership of the House Financial Services Committee. As we head towards a pro-crypto election season in 2024, forecasts predict a continued “altcoin” season—a term reflecting a period where alternative cryptocurrencies outperform Bitcoin—extending well into 2025. However, does this narrative adequately capture the broader digital asset ecosystem?
Beyond the Binary Classification
Market analysts often simplify the crypto landscape into two categories: 1) Bitcoin (and for some, Ether) and 2) alternative or “alt” coins. This binary classification made sense in the early days of digital assets when Bitcoin was at the forefront of blockchain technology, while other projects were still emerging. Nearly 16 years after Bitcoin’s launch, a wave of innovation has expanded the blockchain asset landscape, outgrowing this simplistic framework. Investors must now recognize that crypto represents a diverse, multi-sector asset class.
Understanding the Digital Asset Class
The term “altcoin” can mislead investors into thinking cryptocurrencies, aside from Bitcoin, are lesser in size and industry relevance compared to equities. A comparative analysis of market capitalizations (Figure 1) shows that many significant crypto assets, excluding Bitcoin, share market cap sizes with notable constituents of the S&P 500, along with a varied sector representation. This challenges the perception that crypto assets lack the breadth and depth found in traditional markets.
The stocks of various well-known companies, as illustrated, exhibit market capitalizations akin to leading crypto assets (for instance, Solana’s market cap is similar to that of UPS). Both asset classes represent diverse industries within their markets. While there is a smaller number of digital assets than stocks, the dynamic nature of cryptocurrencies is likely to broaden the asset class further moving forward.
Building Diversified Digital Asset Portfolios
Adopting a binary “Bitcoin vs. altcoins” perspective may overlook the advantages of diversified portfolio construction both within cryptocurrencies and in the overall asset allocation. A well-structured portfolio that encompasses various crypto sectors and use cases mitigates risk from asset concentration, ensuring engagement with the complete value proposition of the asset class, and increasing potential return sources. Given the rapid evolution of the digital asset landscape, it is essential to create crypto allocations that adapt to ongoing changes and growth. This can be achieved through a systematic approach to asset selection, continual adjustment of the portfolio, and prudent allocation via passive or active management strategies. Embracing the wider crypto economy as part of a lengthy investment portfolio involves employing long-term strategies in digital assets.
Insights on an Evolving Asset Class
Focusing narrowly on Bitcoin versus everything else may obscure the vital and quickly growing presence of diverse crypto assets. This limited view could cause investors to miss out on the substantial long-term benefits associated with comprehensive investments across the digital asset landscape.
