Education Note

18 August 2026, 11:56 UTC Chief Investment Office GWM Investment Research

Digital Assets 101: Why crypto needs traditional diversification Education Note Authors: Michael Bolliger, Chief Investment Officer Switzerland, UBS Switzerland AG; Michael Papadogeorgos, CFA, Strategist, UBS Switzerland AG; Kiran Ganesh, Strategist, UBS Switzerland AG; Gülben Gözü, GTP, UBS Switzerland AG

Disclaimer: This report is for educational purposes only, as • We think large allocations to crypto can undermine the overall success of an investment portfolio and UBS does not provide any investment recommendations present a risk to investors’ ability to preserve and on digital assets. Digital assets can exhibit significant price accumulate wealth over time. volatility, face liquidity challenges, encounter uncertain regulations, and may be susceptible to bugs and fraud. Investors therefore face the risk of a significant or total loss of capital. Risk tolerance is therefore an important • Established asset classes offer longer track records, more reliable diversification, and clearer fundamental consideration for such assets. return drivers, and are more suitable for protecting and growing wealth over the long-term.

• Investors with large crypto allocations should therefore consider diversifying concentrated positions into traditional assets. Cryptos can have a role in a portfolio for those who believe in their longer-term potential, but the scale of the exposure should not dominate portfolio risk.

• Crypto allocations should not materially alter an investor's intended risk profile and should be rebalanced regularly to limit concentration risk and maintain a balanced portfolio. Source: UBS

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures at the end of the document.

In recent years, some investors have accumulated substantial financial wealth. In finance, identifying the outperformers wealth through crypto [1]. This includes those who invested with the benefit of hindsight and extrapolating an early or happened to own the right coins at the right time. asset’s potential future performance from there is called However, many experienced large and often permanent survivorship bias. This can lead investors to overestimate losses. future return potential. Strong performance in the past is no guarantee an asset will continue to perform well. Looking ahead, the volatile nature of cryptos makes it especially difficult to forecast price developments with 2. Crypto returns depend heavily on timing any confidence, and to identify likely outperformers and laggards among crypto coins. Even for cryptos that have been successful so far, investment returns have depended heavily on market timing. A USD By contrast, portfolios built with traditional assets benefit 100 investment in Bitcoin made at different points in time from long track records, diversification, and fundamental would have resulted in vastly different outcomes (USD 98mn return drivers. In our view, they are a more suitable choice if invested in 2010 versus USD 50 if invested in 2025). for longer-term wealth preservation and accumulation than cryptos. Figure 2 - Current value of USD 100 invested in crypto and tech stocks at different times Accordingly, we think investors with large allocations should diversify their crypto holdings into traditional asset classes. It is an established standard in good portfolio construction that no single position should be large enough to undermine the overall expected portfolio performance.

[1] The terms “crypto” and “cryptos” are used interchangeably to describe crypto tokens and crypto coins for convenience and simplicity.

1. Survivorship bias and the risk of permanent capital loss

Looking back, Bitcoin's rise could be seen as a mark of success. However, only a small minority of cryptos have generated such positive returns over time, let alone UBS CIO, Bloomberg, as of end of June 2026. anywhere near Bitcoin’s gains. Millions of coins have failed, Ethereum start in 2015 due to the later availability of historical price data. often leaving investors with deep losses (Figure 1). Past performance is no guarantee of future…