- 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?*
Historically, bitcoin has exhibited relatively low correlations with traditional asset classes over full four-year crypto cycles. While those relationships have evolved as cryptocurrencies have become more integrated into financial markets through futures, exchange-traded funds (ETFs) and ETPs, bitcoin has generally maintained diversification characteristics distinct from many traditional assets.
The question becomes more complicated when investors move beyond bitcoin. Ether and SOL are generally less liquid and more volatile than bitcoin. Since the start of 2026, ether and SOL have exhibited volatility approximately 35% and 44% higher than bitcoin, respectively. Diversification within crypto therefore often increases volatility. Whether that improves diversification depends on correlations. A volatile asset moving in the same direction as the rest of the portfolio may reduce diversification benefits, while one moving differently may enhance them.
Historically, SOL has acted as a better diversifier than ether. Over the four years through April 2026, bitcoin's correlation with ether was 0.78. By contrast, SOL's correlation with bitcoin was 0.72. Thus, SOL was slightly less likely to move in the same direction as bitcoin each week. More importantly, when SOL did not move in the same direction as bitcoin, it was historically less likely than ether to move in the same direction as other parts of a traditional portfolio, such as equities. SOL's correlation with the S&P 500 Index was slightly lower than both bitcoin's and ether’s. If historical correlations are any guide, SOL might act as a better diversifier than ether.
Not all investors are motivated by diversification benefits. We see three reasons investors hold digital assets in their portfolios. Investors who view crypto as digital gold may continue to prefer bitcoin. Investors focused on blockchain adoption and financial disruption may prefer exposure to bitcoin, ether and SOL. Each of these technologies are disrupting different addressable markets. Investors primarily seeking diversification may want to consider either a bitcoin-only portfolio or a portfolio combining bitcoin and SOL.
We make no recommendation regarding whether investors should buy, sell or hold bitcoin, ether, SOL or any other asset. Historical relationships may not persist, and past diversification characteristics should not be viewed as indicators of future results. Still, as the digital asset ecosystem expands beyond bitcoin, investors may increasingly find that the more important question is not whether to diversify within crypto, but how.
*Diversification does not eliminate the risk of loss.
-1.png?width=1120&upscale=true&name=image%20(19)-1.png)
0 Comments