Ethereum Classic (ETC) offers a way for investors to diversify their portfolios due to its unique properties and lack of correlation to major crypto assets like Bitcoin and Ethereum. Here are some of the key benefits of adding ETC as a component of a balanced investment allocation.
Ethereum Classic is a decentralized blockchain platform for smart contracts and dApps. It originated from a 2016 fork in the original Ethereum network stemming from disagreements after a major hack. The unforked, original chain continued as Ethereum Classic.
ETC has carved out a niche as a more immutable, censorship-resistant blockchain compared to Ethereum. Its native token, ETC, ranks among the top 20 cryptocurrencies by market capitalization.
Low Correlation to Other Assets
Research shows that ETC’s price movements have had relatively low historical correlations to both Bitcoin and Ethereum, making it a good diversifier:
- 3-year correlation to BTC: 0.53.
- 3-year correlation to ETH: 0.67.
This data suggests ETC moves somewhat independently from the overall crypto market’s fluctuations. Adding a portion of ETC can potentially lower portfolio volatility.
Unique Ideology and Community
Ethereum Classic has cultivated a unique ideology and community focused on immutable smart contracts and distrust of hard forks. This gives ETC some autonomy from general crypto market sentiment.
The Ethereum Classic community is also more committed to a pure proof-of-work model at a time when Ethereum is transitioning to proof-of-stake. This philosophical distinction leads to divergent prices.
Growing Developer Interest
While smaller than Ethereum, Ethereum Classic is seeing increasing activity among decentralized app developers as gas fees rise on Ethereum. This growing developer interest could drive adoption and price appreciation of ETC.
Potential Edge Case Upside
If Ethereum faces existential threats from regulation, security issues, or competition, some developers could migrate to the more immutable Ethereum Classic chain. In such black swan scenarios, ETC and ETH prices would likely diverge as ETC gets repriced higher.
Following several 51% attacks on its network, Ethereum Classic has implemented new security measures including modified difficulty adjustment algorithms. This makes future attacks more difficult and the network more robust overall.
While Ethereum Classic faces stiff competition from Ethereum and other smart contract platforms, its unique position in the market gives it useful diversification properties. Adding a 1-5% ETC allocation to an investment portfolio containing Bitcoin, Ethereum, and other assets can potentially reduce risk through greater diversification across historically low-correlated return streams.
ETC offers speculative upside as well with its carved-out niche. Of course, extensive due diligence is still required before investing in any cryptocurrency.