Single cryptocurrency ETFs are all the rage in the cryptocurrency market these days. The most popular, of course, are spot ETFs that invest solely in bitcoin(CRYPT: BTC). Collectively, these Bitcoin spot ETFs have raised more than $100 billion from investors.
But there’s just one problem here: Bitcoin is down almost 20% for the year, and almost 45% from its all-time high of $126,000 in October. Betting on Bitcoin does not seem to be the optimal investment strategy at the moment. Shouldn’t prudent investors look for exchange-traded funds that invest in a basket of diversified cryptocurrencies to offer greater protection against downside risk?
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In theory, investing in a basket of cryptocurrencies should be a more effective strategy than going all-in on a single cryptocurrency. Read any portfolio management textbook and that’s exactly what you’ll find. Diversification is the fundamental component of modern portfolio theory. Don’t put all your eggs in one basket.
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In the stock market, for example, ETFs that track the S&P 500 are extremely popular. You could also easily find an ETF that tracks a specific industry or sector. You could choose to own a basket of small company stocks or perhaps a basket of stocks from a different country. The objective, in each case, is to diversify risk by holding a broad basket of stocks.
Likewise, having a combined crypto portfolio should have some diversification advantages. With that in mind, Coinbase Global(NASDAQ: CURRENCY) It has even created a crypto index, the Coinbase 50 Index, to track a broad group of cryptocurrencies and crypto assets.
However, theory and practice often differ significantly in the cryptocurrency market. As of April 9, 2026, Bitcoin is down 17% year-to-date. Broader-based crypto indices have fallen further. For example, the CoinMarketCap 20 index is down 23% in 2026.
Even with all the additional diversification (owning 20 cryptocurrencies, instead of just one), investors would still underperform Bitcoin. And that is without taking into account the possible management costs of owning an ETF linked to this index.
For me, it all comes down to one question: Can multi-cryptocurrency ETFs beat Bitcoin? If they can, then it’s worth taking a closer look. If not, pass.
To illustrate this point, let us consider the Bitwise 10 Crypto Index ETF(NYSEMKT:BITW). It has 10 different cryptocurrencies to help investors diversify their exposure to the cryptocurrency market. However, it will be down 22% in 2026, almost the same as Bitcoin.
No, diversification did not protect investors from the downside here.
At the end of the day, Bitcoin still represents a whopping 60% of the market cap of the cryptocurrency market. Therefore, any diversified market-weighted fund or index will have approximately 60% of its assets invested in Bitcoin.
Take the Coinbase 50 index as an example. Since it invests in a mix of 50 different cryptocurrencies and cryptoassets, you might initially assume that you wouldn’t have more than a pinch of Bitcoin. But he actually has a 50% position in Bitcoin. In order to track the cryptocurrency market, you need to track Bitcoin.
And here a second factor intervenes. Most cryptocurrencies are highly correlated with Bitcoin. As Bitcoin goes, so does the cryptocurrency market.
The easiest way to see this is with Ethereum(CRYPT: ETH)the second largest cryptocurrency in the world. Historically, its correlation with Bitcoin is close to 0.90. Over the past 12 months, the correlation remains a strong 0.85. That’s the closest you’ll get to 1 with two different assets.
Put another way, Bitcoin and Ethereum tend to march at the same pace. If the price of Bitcoin is going down, Ethereum is likely to do the same. You won’t gain much by switching from Bitcoin to Ethereum.
In fact, it is extremely difficult to find any cryptocurrency that does not have a strong positive correlation with Bitcoin. Using data from DeFi Llama, it is possible to play with the price correlations of cryptoassets. And no matter what major cryptocurrency you try to compare with Bitcoin, you will probably find a strong positive correlation of 0.70 or more. In other words, it’s hard to find a cryptocurrency that can zig when Bitcoin does (and vice versa).
This is not an attempt to convince you to become a Bitcoin maximalist (i.e. someone who only invests in Bitcoin). And it’s not an attempt to convince you to abandon portfolio diversification or multi-crypto ETFs when investing in cryptocurrencies.
But to paraphrase a popular Wall Street maxim, this is not a cryptocurrency market, but a cryptocurrency market. It’s up to you to identify the standout winners, especially during extreme market volatility. There are no easy shortcuts to simply owning the entire market. For now, I’m sticking with Bitcoin and waiting for it to push the entire market higher.
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Dominic Basulto has positions in Bitcoin and Ethereum. The Motley Fool holds and recommends Bitcoin and Ethereum. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
Should I invest in Bitcoin… or a basket of diversified cryptocurrencies? was originally published by The Motley Fool
