Beyond Bitcoin & Ethereum: Building Smarter Crypto Portfolios

The rise of Bitcoin and Ethereum ETFs has been a watershed moment for institutional crypto exposure. But what comes next? In a recent webinar, Zav Witdouck from Talos and Adam McCarthy from Kaiko explored how asset managers can go beyond single-asset holdings to build more diversified, smarter crypto portfolios—using the Kaiko KT10 Index and the Talos platform to demonstrate the main points.

Watch the replay.

What is the Kaiko KT10 Index?

The KT10 Index is Kaiko’s flagship benchmark, balancing breadth with practicality. It aims to capture broad crypto market exposure by selecting 10 assets using a data-driven methodology:

• 75% weighting on market cap, and 25% on liquidity
  
• All assets are highly tradable, appearing on vetted exchanges
  
• Each has access to regulated spot, futures, or options markets—important for institutional strategies

To ensure meaningful diversification, no asset exceeds 30% of the index, avoiding overexposure to Bitcoin or Ethereum. The index is rebalanced quarterly, a tradeoff that optimizes cost-efficiency without sacrificing performance.

How does the Talos platform power portfolio construction?

Zav walked through how the Talos platform enables asset managers to:

• Analyze risk & return profiles across different investment universes
  
• Backtest strategies, incorporating capacity constraints, transaction costs, and liquidity rules
  
• Construct and manage real portfolios, using smart optimization and execution tools
  

He highlighted some of the many tools within the portfolio construction suite including:

• Model Explorer: Visualizes risk/return tradeoffs across asset universes
  
• Rebalancer: Systematically rebalances portfolios with tracking error minimization
  
• Backtester: Assesses implementation drag, transaction costs, and scalability
  
• Benchmark integration: Seamless KT10 index tracking and replication
  

Are there diversification benefits in crypto?

Indeed. Using Talos’s visualization tools, Zav loaded the KT10 index to demonstrate how a diversified portfolio outperformed BTC or ETH alone or any combination thereof, based on realized returns over the past 5 years 

• Analysis showed that the vast majority of the 50,000 random allocations of the KT10 index constituents realized better risk-adjusted returns than 100% BTC, 100% ETH, or any combination of BTC + ETH over the past 5 years.
  
• Portfolios made up of KT10 constituents offered materially higher Sharpe ratios (up to >30% higher) than BTC or ETH alone

Replicating an index

The webinar wrapped up with a live demonstration of index replication using the KT10 as the example:

1. Starting from a cash-only portfolio
   
2. Using Talos’s optimizer to generate target weights that minimize tracking error
   
3. Executing trades with smart order routing to get the portfolio aligned with KT10 weights

The system even accounted for cash drag, slippage, and real-world execution factors—showing how an index strategy can be deployed and managed seamlessly.

Looking ahead

With over 40 crypto ETF applications pending in the U.S., and regulatory clarity improving, broader-based crypto investment vehicles are on the horizon. Indexes like the KT10 and platforms like Talos are well-positioned to support this evolution.

As Zav summed it up: “There are clear diversification benefits in crypto, and we’re excited to help investors implement smarter exposure strategies.”

^{Disclaimer: The views and opinions expressed herein are those of the speaker(s) and do not necessarily reflect the views of Talos Global, Inc. or its affiliates (collectively, "Talos"). This material is for informational purposes only and is only intended for sophisticated institutional investors, and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of Talos.}