Crypto Long & Short: To ETH or not to ETH — is SOL the better diversifier?
This article evaluates the role of Ethereum and Solana as portfolio diversifiers alongside Bitcoin for institutional investors. It analyzes historical correlation and volatility data to determine whether adding these assets improves risk-adjusted returns in a traditional investment portfolio.
Why it matters
As cryptocurrency becomes more integrated into institutional finance, understanding the diversification benefits of various digital assets is critical for portfolio management.
Welcome to our institutional newsletter, Crypto Long & Short. This week:
To ETH or not to ETH — is SOL the better diversifier?
By Denny Galindo , CFA®, executive director, Global Investment Office, Morgan Stanley Wealth Management
Bitcoin's spot exchange-traded products (ETPs) have attracted more than $55 billion in inflows since their launch in January 2024, helping pave the way for the subsequent launch of Ether and SOL ETPs. With more cryptocurrency investment options now available, many investors are asking whether they should have digital asset exposure at all and, if so, whether they should own ether and/or SOL alongside bitcoin.
To evaluate the portfolio role of these assets, we focus on two questions: 1) how correlated are digital assets with other parts of a typical portfolio? and 2) what combination of bitcoin, ether and SOL has historically provided the greatest diversification benefit?*
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