Is Ether a Good Portfolio Diversifier?

With the 2024 launch of spot exchange-traded products for Ether, investors gained an accessible way to invest in the second-largest cryptocurrency by market cap. Whether you already hold Bitcoin or are looking to add crypto to your portfolio for the first time, it’s important to know how investing in Ether may impact your portfolio diversification.

When considering the impact that Bitcoin or Ether could have on your portfolio, you must first understand how it “correlates,” or tends to move in relation, with other asset classes. This understanding is key for investors aiming to achieve diversification, the practice of spreading investments across different assets to help reduce the risk of outsize swings in a portfolio’s value. If two different investments tend to move together, adding one may simply increase this risk, rather than mitigate it.

Morgan Stanley Wealth Management strategists have identified three main takeaways for investors about correlations between cryptocurrencies and other assets: 

1. Bitcoin and Ether move together most of the time. Historically, owning both has not added much diversification to a portfolio. 
2. While cryptocurrencies sometimes seem to move up or down with stocks, over longer, four-year periods, they have historically had pretty low correlation to stocks.
3. Correlations shift. As cryptocurrencies have become more popular, they have had increasing correlations with other assets like stocks.

Looking at other asset classes, Bitcoin has at times been highly correlated with gold and has often been inversely correlated with the US dollar, meaning they tend to move in opposite directions. 

Ether tends to follow similar patterns. Its correlation with Bitcoin was 0.79 over the past four years, meaning that the two assets have tended to move in the same direction most of the time, although not always at the same pace.

In addition, Ether has been about 26% more volatile than Bitcoin, which means it may amplify portfolio swings instead of smoothing them out. That said, Ether has declined in volatility in recent years. Whether this is a temporary decrease or the result of an increase in its liquidity resulting from new products, like ether-futures and ether-futures-backed exchange-traded funds (ETFs), remains to be seen.

Ether's volatility has trended toward Bitcoin's volatility in recent years

Source: Bloomberg, Morgan Stanley Wealth Management Global Investment Office as of September 9, 2025

Morgan Stanley Wealth Management takes no position on whether investors should buy, sell, or hold Ether. That said, cryptocurrency is a new asset class that many investors want to better understand in the context of its potential role in a portfolio.

So, if Ether isn’t likely to increase a portfolio’s crypto diversification, why own it at all? The answer depends on your view of Ether itself and why you’re interested in cryptocurrency. It can be helpful to think of crypto investors in three general categories:

1. "Digital gold” investors: Many investors see crypto as a hedge against inflation and a weakening dollar, similar to holding gold. Most investors looking for digital gold are satisfied with Bitcoin, as Ethereum has been more volatile than Bitcoin.
2. Disruptive tech believers: Most owners of Ethereum like it because of its potential to disrupt various portions of the financial industry. The Ethereum network – a blockchain and development platform that uses Ether as its currency – plays a key role in powering decentralized financial services such as lending, borrowing, and trading outside of traditional financial institutions. Because Ethereum powers not just a currency but also a whole network of decentralized applications (dApps), it has more uses than Bitcoin and potentially a much larger addressable market. Additionally, Ether has built-in features that limit its supply.
3. Crypto portfolio diversifiers: Investors who have already invested in Bitcoin may want to look elsewhere for diversification. Because of the high correlation between Bitcoin and Ether, adding Ether historically has only increased portfolio volatility and not added much diversification. In fact, for an investor, splitting a crypto allocation to 1.25% Bitcoin and 1.25% Ether over the last four years would have resulted in the same increase in portfolio volatility as simply increasing Bitcoin-only exposure from 2.5% to 3.0%.

If you’re thinking about allocating a portion of your portfolio to cryptocurrency, it’s important to consider what assets it would replace. Your answer will depend on your reason for holding crypto in the first place:

• If you’re a digital gold investor, you might reduce your gold allocation or short-US dollar investments.
• If you’re a disruptive tech believer, you might consider reducing your exposure to tech stocks or venture capital investments.
• If you’re seeking overall portfolio diversification, you might fund your position by reducing the rest of your portfolio evenly.

The key to remember is that there is no one “right” answer. How you diversify your portfolio – whether with Ether, Bitcoin, or other assets – depends on your current portfolio mix, investment goals, and crypto outlook.

Like so many questions about investments, the definitive answer about whether or not to add Ether to your portfolio is: It depends.

Many investors may find it easier to think of Ether as a way to pursue investment strategies that take advantage of blockchain’s utility, as opposed to a way to diversify their crypto holdings. While it may not help investors hedge their Bitcoin investments, Ether may provide value, thanks to its historical role for some investors as an alternative to gold or tech investments. That said, Ether is still a relatively new investment, and how it ultimately correlates with other assets remains to be seen.

This article is based on the AlphaCurrents report, “To ETH or Not to ETH, That Is The Question,” published August 28, 2024.

CRC# 4788910 09/2025