As more institutional investors adopt cryptocurrencies, allocators and crypto managers are looking beyond Bitcoin for opportunities.

Take for example, Bitwise, which last week launched what it’s calling the first large-cap cryptocurrency index fund without exposure to Bitcoin. The index fund is a nine-currency, ex-Bitcoin version of the company’s flagship Bitwise 10 Crypto Index Fund, which launched in 2017 and includes the ten largest cryptocurrencies in the world.

According to Matt Hougan, chief investment officer of Bitwise, the decision to exclude Bitcoin was two-fold.

For one thing, he said many investors first came into the crypto markets through Bitcoin. Since then, new currencies have arisen and new products have dominated the space. In fact, over the past year, Bitcoin’s share of the total market capitalization of the crypto space fell from 69 percent to 42 percent, according to Bitwise.

The other reason, according to Hougan: Not everyone loves Bitcoin.

“Bitcoin has a very specific role in the crypto market as digital gold, and many people think crypto has broader applications as the new internet of finance,” Hougan told Institutional Investor. “So some people would rather have a portfolio that excludes Bitcoin and just focuses on these more productive crypto assets.” 

According to Moody’s Investors Service, cryptocurrencies are one of the key forces shaping the financial services industry, and investor demand for cryptocurrencies and additional digital advancements has extended well beyond an interest in Bitcoin. In a new report, the credit ratings agency argued that digital forces like stablecoins (a subset of cryptocurrencies that are linked to a particular asset, such as gold or the U.S. dollar), fintech, and central bank digital currencies have the potential to upend traditional financial institutions’ roles as middlemen in financial transactions. 

“Things like CBDCs are changing the fundamental nature of modern money that we’re all using, which is currently a product of private entities — private commercial banks — and changing that to allow for citizens, consumers, and corporations to have access to an electronic, public form of money, which is a direct liability of the central bank,” said Stephen Tu, vice president and senior credit officer at Moody’s.

Tu and his co-authors believe that blockchain-based cryptocurrencies, like Bitcoin, may not have the capabilities to change the nature of global banking. But stablecoins do. According to Tu, stablecoins have the potential to function as a widely-accepted form of payment in the future because of their stable, fixed value. 

“If you can have a stablecoin operate within a global tech ecosystem, there’s a lot of value that could be had,” Tu said. 

At crypto index provider Bitwise, clients are largely institutional, including family offices, financial advisors, hedge funds, and institutions. “Crypto is a great asset in institutional portfolios,” Hougan said. 

He argued that cryptocurrencies provide three key benefits to institutional portfolios: high potential returns, low correlation to other assets, and liquidity. But for many institutional clients, Hougan said educational challenges and behavioral burdens hinder widespread adoption of cryptocurrencies into portfolios. 

As for the future, Hougan believes products like Bitwise’s ex-Bitcoin index will make it easier for institutional investors to invest in the crypto space, a shift that will eventually lead to crypto’s normalization in institutional portfolios. 


“The question is changing from ‘Why do you have crypto in your portfolio?’ to ‘Why don’t you?’” he said.