Crypto Long & Short: To ETH or not to ETH — is SOL the better diversifier?

Hi readers,

Welcome to our institutional newsletter, Crypto Long & Short. This week:

• As the crypto market expands, solana has historically been a better portfolio diversifier than ether, despite volatility, writes Denny Galindo.
• Top headlines institutions should pay attention to by Francisco Rodrigues.
• “Robinhood Chain’s $690M/day DEX debut is 99.5% Uniswap” in Chart of the Week.

Thanks for joining us!

-Alexandra Levis

To $ETH or not to $ETH — is $SOL the better diversifier?

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.