Ethereum outperforms Bitcoin

The Rebirth of the Fund of Funds

Maximilian Bruckner
Jan 10, 2022 9:40:11 AM

The topic of Bitcoin as an investment and valid addition to any portfolio is now more relevant than ever. The question arises whether one already has sufficient crypto exposure with a pure Bitcoin investment, and thus fully exploits the potential of the new asset class. Ethereum, as the second-largest crypto asset, significantly outperformed bitcoin in 2021; the performance gap is nearly 400 percent [1]. The purpose of this article is to briefly describe Ethereum and explain how investors can invest in other crypto assets in the most diversified, cost-saving, and risk-minimizing way possible without losing the high returns.

Authors: Maximilian Bruckner, Prof. Dr. Philipp Sandner

Ethereum outperforms Bitcoin! What's Ethereum?

With a market capitalization of over 380 billion euros, Ethereum is the second-largest crypto asset in the world — about 300 billion euros ahead of the third-place finisher. Both outperformed Bitcoin in 2021 (figure 1).

Performance Top 3 CoinsFigure 1: Ethereum (blue) and Binance Coin (red) clearly outperformed Bitcoin (black) in 2021 (Source: Arcane Research)

But what is Ethereum all about? The basic architecture of the Ethereum blockchain is very similar to that of Bitcoin, but there is one crucial difference: proprietary programming languages such as “Solidity” allow developers to write so-called “smart contracts” and run them on the Ethereum blockchain. A smart contract is a contract in the form of software, which automatically executes the contractual agreements as soon as the conditions prescribed in the program are met. This eliminates some of the costs and delays often present in traditional contracts, as no middle man is needed to verify compliance with the terms of the contract — thanks to the programmed set of rules, combined with blockchain technology. But Ethereum’s programmability doesn’t end there. Just like the operating system of a smartphone (e.g., Apple’s iOS or Google’s Android), Ethereum is an operating system on the basis of which applications (apps) can be built. Ethereum serves as an ecosystem for such apps and can be used to create new, application-specific cryptocurrencies for those apps. Out of the top 200 cryptocurrencies, around 92 are based on Ethereum [2].

The market correlates with Bitcoin and Ethereum

This is in part due to Bitcoin and Ethereum together accounting for roughly 60% of the total crypto market capitalization. A Bitcoin and Ethereum bull market affects the entire crypto market, and the Pearson’s correlation coefficient is often above 0.60 for the top 20 [3]. Low cap crypto assets typically gain much more in response to a bitcoin run. They reach 50% within a few days (or hours), sometimes it’s 100% or more. There’s no upper limit here. But these high returns also carry high risks — the higher you fly, the lower you can fall. If the Bitcoin price falls by just a few percentage points, these crypto assets with low market capitalization fall much faster as well. Due to the strong correlation of the market to the Bitcoin and Ethereum price, at first glance it may seem like a good strategy to invest in Bitcoin and Ethereum with a 50/50 weighting and simply neglect the rest, since they are correlated anyway. However, there are a few problems with this strategy. First, it’s not that easy to invest larger sums directly into Bitcoin and Ether. There are some regulatory hurdles to overcome and one must acquire very specific legal know-how. While various certificates, ETPs, and ETFs allow for much easier entry from a legal, tax, and regulatory perspective, investors pay a heavy toll for this ease of entry in the form of above-average high fees. Secondly, with a pure Bitcoin-Ethereum strategy, one exposes oneself to a crypto-specific systemic risk. Thirdly, one shouldn’t forget that Bitcoin and Ethereum continue to exhibit high volatility..

Crypto Funds offer new opportunities in a familiar format

Through intensive in-house research and a strict focus on crypto assets, specialized funds can overcome and avoid some of the previously mentioned hurdles and risks. For example, through diversification, they can avoid the systemic risk of a pure Bitcoin–Ethereum strategy and reduce volatility. Furthermore, crypto funds can present a better ESG balance (for example through direct carbon offsetting) than a direct investment via the financial instruments mentioned in the previous paragraph. As the environmental impact of Bitcoin has recently become a major point of criticism, this is important for many investors. Crypto funds also handle the complex custody of these assets, and the investment process into a well-known vehicle such as a fund does not require unusual legal or tax expertise, such as a direct purchase of Bitcoin and Ether would.

The crypto fund universe currently consists of around 1.000 funds

Half of these funds are illiquid venture capital funds. Depending on the investment objective, these illiquid strategies should be disregarded in favor of the remaining 500 liquid funds. The remaining funds in turn differ in terms of their market exposure, risk profile and cost structures. Actively managed funds offer some advantages in this early market environment and, if well managed, are typically specialized to follow unique strategies. Investors should therefore look for funds that offer real value rather than investing in high-cost, generic strategies. For example, for funds with a high, constant Bitcoin and Ether exposure, investors should not accept the high costs of 2% p.a. plus a performance fee of up to 20%. Such funds actually offer little added value when compared to a direct investment in Bitcoin or Ether. Instead, funds with a broad investment spectrum and a clear strategy are worth a look. Further, there are crypto funds with risk-minimizing strategies that exploit market inefficiencies without taking directional risks. In 2021, for example, some funds were able to take advantage of the high risk appetite of some investors by selling leveraged derivatives and hedging their risk via the spot market. This is possible because investors are still willing to pay massive premiums for leveraged products in the crypto market, creating market inefficiencies that professional funds can exploit. In such a young market, these funds offer risk-return profiles that are hard to find in equity markets [4].

Crypto funds of funds present a middle ground

Analyzing the 500 liquid crypto funds requires both in-depth financial and crypto-specific knowledge. It can make sense here to hire an external party to help select crypto funds. Funds of funds are experiencing a renaissance for this reason. They offer professional investors a comparatively conservative risk profile and protect investors from defaults by prior screening of significant IT and other risks that are unique to crypto and therefore still foreign to most investors. Some funds achieve risk profiles similar to equity investments, while still promising much better returns. In addition, funds of funds have the ability to provide professional investors with excellent diversification at low cost even with relatively low investment contributions. With the same low investment contributions, such diversification could not be achieved through investments in individual funds due to their minimum subscription amounts. Furthermore, funds of funds often receive special conditions that benefit investors and at least partially compensate for the additional costs of the fund of funds structure. 

Management Fee by Fund TypeFigure 2: Crypto funds of funds have the lowest average management fee amongst all types of crypto funds. (Source:

Conclusion: From an investor’s point of view, crypto funds of funds — due to their attractive risk-adjusted returns and especially due to the possibility to better control maximum losses through strategy diversification — should be given more attention. 

About 21e6 Capital

21e6 Capital is a Swiss investment advisor, connecting professional investors with optimal crypto investment products. 21e6 Capital has analyzed over 1,000 crypto funds across the world and has condensed them to a select few which can yield crypto-exposure with minimized downside risk. Backed by a highly experienced team of crypto and finance experts with in-depth knowledge in digital assets and DLT, 21e6 Capital created a distinctively unique quantamental strategy aiming at achieving bitcoin-like returns while minimizing risk and volatility to equity levels, and only investing in thoroughly scrutinized, top-notch funds.


Maximilian Bruckner is Head of Marketing & Sales at 21e6 Capital AG. Prior to this, he was engaged as Executive Director dof the International Token Standardization Association e.V. where he focused on intense research and classification of cryptoassets according to the International Token Classification Framework. He was heavily involved in the creation of the world’s biggest token database for classification data on tokens. Maximilian graduated from the Frankfurt School of Finance and Management and wrote his Thesis on the „Use Cases of a Token Database“ under the supervision of Prof. Dr. Philipp Sandner. You can contact Maximilian via e-mail at to request more information on 21e6 or ask any questions regarding this article. You can also follow Maximilian on LinkedIn ( to stay up to date.

Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). From 2018 to 2021, he was ranked among the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. Further, he belonged to the “Top 40 under 40” — a ranking by the German business magazine Capital. He has been a member of the FinTech Council and the Digital Finance Forum of the Federal Ministry of Finance in Germany. He is also on the Board of Directors of FiveT Fintech Fund21e6 Capital and Blockchain Founders Group - companies active in venture capital financing for blockchain startups and crypto asset investment management.


[1] Bloomberg, 2021

[2] International Token Standardization Association e.V., 2020

[3] Bitcoin Suisse Research, 2020;, 2021

[4] 21e6 Capital AG,, 2021

You May Also Like

These Stories on crypto funds