Relative Cryptocurrency Valuations
Bitcoin versus Ethereum and Litecoin
I’ve written many times about the diversification benefits of adding a small amount of cryptocurrency to your portfolio. But, not all cryptocurrencies perform similarly. In fact, there is a huge amount of divergent behavior among even the most popular cryptocurrencies. Take a look at the price of Ethereum versus the price of Bitcoin:
Believe it or not, there was a moment in 2017 that it appeared Ethereum could overtake Bitcoin. The hype was bigger, the technology appeared better, and it really did seem like the future of crypto. That hype faded. And, ever since 2019, Ethereum hasn’t made another surge in value relative to Bitcoin.
Litecoin was never going to replace Bitcoin. But, it has been around a very long time and so it’s a long-time crypto standby. Over the years, there have been a few volatile cycles for Litcoin as well, albeit nothing on the same level as Ethereum.
The bottom line is, cryptocurrency is a broad catch-all for a huge number of coins. Within that universe, there is even more diversification potential. However, when I’ve mentioned holding Bitcoin as a very small portion of your portfolio, you probably wouldn’t want to allocate additional portfolio space to different cryptocurrencies. Either take your Bitcoin allocation and split it between a few well-known tokens or hold it all in Bitcoin. And, be careful of diving too deep down the alt-coin rabbit hole. There are some seriously fringe cryptocurrencies out there with little liquidity and massive volatility.
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