In today’s newsletter, Glenn Williams Jr of ProShares writes about growing investments in cryptocurrencies outside of bitcoin.
Then Michael Sena of Recall Labs answers questions about portfolio construction and diversification in Ask an Expert.
– Sarah Morton
Investors are expanding their crypto horizons
As the number of cryptocurrencies has grown, so has investors’ appetite for broader exposure. Since its inception with a single transaction in 2009, the crypto ecosystem has grown to support millions of daily transactions today, and crypto’s market cap has grown from virtually nothing to more than $3 trillion.
Bitcoin, the asset at the heart of crypto’s early days, is still often seen as a proxy for the entire asset class. But while bitcoin currently represents close to 60% of global crypto value, the cryptocurrency universe is expanding rapidly, with a host of new digital assets gaining market share and ever-increasing investor attention.
The increase of the rest
Since 2023, the market cap of cryptos, excluding bitcoin, has grown 175%. Ether, the world’s second-largest crypto asset, has grown 142% over that period. Meanwhile, use cases for cryptoassets have also developed at an exceedingly fast pace. While bitcoin can be seen as a store of value, other cryptoassets offer use cases such as decentralized borrowing and lending.
Investors are also considering structural differences within the digital asset space. While some digital assets host their own blockchains (e.g. Bitcoin, Ethereum, Solana), others are built on top of existing ones, such as Uniswap and Aave. This distinction alone affects everything from management rights to potential cash flows. In short, the diversity among cryptoassets is evolving daily, and gaining exposure to just one (or even two) limits exposure to the entire asset class.
Crypto market cap, excluding bitcoin
Source: TradingView, data from Jan. 1, 2023-Jan. 27.2026.
An indexed approach to changing times
Indices such as the CoinDesk 20 Index (CD20) aim to give investors broad and diversified exposure to cryptocurrencies as a whole. As capital flows into digital assets, performance dispersion among index constituents may widen.
The internal rotation possibilities within cryptocurrencies can be seen in line with sector rotation in traditional finance. For example, the correlations between CoinDesk 20 constituents and US stocks remain fluid, with ebbs and flows reflecting an asset class that is still maturing. Even so, the correlations between cryptocurrencies and stock markets over longer periods have been moderate.
Measuring the performance of the largest 20 digital assets by market capitalization (excluding stablecoins and other coins), CD20 currently represents 90% of the total crypto-asset market share. Eligibility is determined by a ranking of the largest digital assets and governed by liquidity, custody and listing requirements. There is a quarterly reconstitution and rebalancing to keep up with changes in the crypto asset class. In addition, the CoinDesk 20 Method imposes a 30% cap on its largest asset and a 20% cap on all others to limit concentration in a single coin.
Benchmarks matter
For any new asset class, it is important to establish benchmarks. Investors have developed a comfort level with them over time and refer to them daily. In my opinion, CoinDesk 20 is designed to do the same for digital assets, organizing their inherent (but sometimes unrealized) diversification into a liquid and investable unit of exposure.
This information is not intended as investment advice. All forward-looking statements herein are based on the expectations of ProShare Advisors LLC at this time. However, whether actual results and developments will be consistent with ProShare Advisors LLC’s expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; changes in laws or regulations or other actions by governmental authorities or regulatory bodies; and other world economic and political developments. ProShare Advisors LLC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investment involves risk, including possible loss of principal.
– Glenn C. Williams, Jr., CMT, Manager and Investment Specialist, ProShares
Ask an expert
Q: What does meaningful diversification look like in today’s crypto market beyond simply having more tokens?
Meaningful diversification in crypto is not about collecting tokens, but about understanding risks. If everything in your portfolio moves together, you’re not diversified, just exposed to the same cycle in different wrappers. Real diversification means thinking beyond price charts, taking the necessary exposure across categories such as infrastructure, decentralized finance (DeFi), real-world assets and digital commodities, combined with different business models that generate sustainable value.
It also means diversification how you function. Custody solutions, liquidity providers, exchanges and regulatory environments all shape outcomes as much as the assets themselves. The goal is to balance innovation with stability, capture growth while protecting capital.
Diversification is not a numbers game, but a disciplined risk management in a complex market.
Q: As the correlations between crypto and traditional assets shift, how should investors rethink diversification in a more macro-driven environment?
Investors must recognize that crypto is now part of the broader financial system. As markets mature, digital assets respond to the same forces as traditional assets: interest rates, liquidity, geopolitics and regulation. Diversification must therefore start with a macro view instead of a token list.
The key question is no longer “how many assets do I own” but “what risks am I exposed to.” As global liquidity tightens, Bitcoin, stocks and technology can all move together. True diversification means balancing risk factors: inflation sensitivity, return exposure, geography and regulatory environments.
Portfolios should be built around strategies. The combination of liquid assets with income-generating businesses and real-world exposure creates resilience in correlated markets that survive better and stronger. This is exactly what we do at BTF.
Q: During periods of volatility, where do you observe investors most often misinterpreting risk when trying to diversify their crypto exposure?
The most common mistake is to confuse activity with diversification. Investors buy more tokens, more chains, more narratives, provided they have reduced risk. In reality, they often just multiply the same exposure. During volatility, correlations move toward one and portfolios that looked diversified on paper collapse. Liquidity risk is also commonly misunderstood. Assets that seem liquid in calm markets can become impossible to exit when conditions change, which most people don’t expect to happen until they do.
Operational risk is another blind spot. Custody providers, exchanges, stablecoins and counterparties can mean more than the assets themselves. True diversification is not about owning more, but about understanding what actually protects capital in stress scenarios. Anyone who understands and sets their strategy accordingly will surely win.
Q: Many still treat Bitcoin as a proxy for the entire crypto market from a financial strategist’s perspective. How does diversification across infrastructure, issuance models and risk profiles actually protect capital?
Bitcoin is the foundation of crypto, but it’s not the whole story. From a financial perspective, treating one asset as a stand-in for an entire industry is simply incomplete thinking.
Crypto today is an ecosystem with multiple sources of returns. Infrastructure produces recurring fees. Tokenized assets are linked to the real world economy. Different issuance models create very different risk profiles. Active strategies behave differently than passive exposure. These elements do not move in lock step, especially in volatile markets.
Diversification protects capital when risk is spread over how value is created. A professional approach looks beyond a single asset and builds exposure to the broader mechanics of the industry.
– Michael Sena, Chief Marketing Officer, Recall Labs
