Research Report: From the perspective of beta value, which crypto assets are more worth investing in?

Author: Michael Nadeau, The Defi Report; Compilation: Deng Tong, Bitchain Vision

Our argument is that there will be a few Tier 1 blockchains that will eventually be adopted at large scale.

Our view is:

• Bitcoin has achieved a monopoly of “Internet currency” or “digital gold” as a means of global value storage.

• Ethereum’s network effect points to L1 becoming a global monopoly of “open source application store”.

• Solana has firmly established its position as the second largest smart contract network.

We believe that these three assets should form the basis of a well-built crypto portfolio.Of course, these are large-cap stocks.The maximum gains in this cycle are unlikely to come from these three assets.

In contrast, small-cap stocks with high beta coefficients are more likely to perform well than these assets.These are high risk/return investments that can be used as a “hot sauce” for placing less portfolios.

But how difficult is it to identify winning assets?

This week, we’ll uncover the answers and show you how difficult it is to surpass the native assets of top L1.

What is beta value?

In the financial sector, beta values ​​are an indicator of the volatility of a stock relative to the overall market or benchmark assets.In this case, we use the leading L1 assets as the benchmark: ETH and SOL.

• The beta value is 1 = The changes in the measured asset are consistent with the benchmark asset.

• Beta value > 1 indicates that the volatility of the measured asset is greater than the benchmark asset.For example, an asset with a beta value of 1.5 indicates that if the benchmark asset rises by 5%, the measured asset will rise by 7.5%.So if the benchmark asset falls by 5%, assets with beta value of 1.5 are expected to fall by 7.5%.

• The beta value < 1 indicates that the volatility of the measured asset is less than the benchmark asset.For example, an asset with a beta value of 0.5 is expected to change by 50%, or half of the benchmark asset.

• A negative beta value indicates that the measured asset is in the opposite direction to the benchmark asset.For example, if the benchmark goes up 1%, assets with a beta value of -0.1 are expected to fall 0.1%.

We use beta coefficients to help us understand the risks/rewards of various assets and use them as portfolio management tools – especially during bull markets, high beta assets tend to perform best.

Which assets have higher beta values ​​relative to ETH?

Note that the data compiled in this week’s report is analyzed for daily, weekly, and monthly beta values ​​for integrity.That being said, our focus is on monthly data, as it removes some noise in a shorter time frame – and tends to be more suitable for investors who invest longer.

The selected assets are based on projects with strong fundamentals, including the Big Market Meme Coin in the analysis.

Finally, the data is based on a 1-year review because we only want to understand how these assets perform under the current bull market conditions (as a prediction of what might happen later in the cycle).

Without further ado, let’s start studying the data.

Key Points

Pepe’s beta coefficient to ETH is the highest of all assets over all periods.It seems to be similar to the Shiba Inu trading in the previous cycle.

MakerDAO’s beta coefficient for ETH is the lowest in all epochs.Its monthly beta coefficient of 0.39 shows that if ETH doubles, MKR will only appreciate by 39%.

Generally speaking, it has 1) fundamentals, 2) product market fit, 3) Lindy effect, 4) The strongest projects of strong brands usually have a lower beta coefficient for ETH – indicating less risk (possibly more room for upwardSmall).

1 year return vs ETH

Key points:

• In the past year,Only 4 of the 9 selected assets outperformed ETH – a sign of how difficult it is to beat the leading assets in cryptocurrencies(Most venture capital firms have a hard time surpassing the benchmark).

• MakerDAOStand out here because it has the lowest beta value (indicating lower risk) but outperforms ETH 39% over the past year.

• ENSThe monthly beta value ranked second lowest (.74), but ranked second with ETH in the past year.Again, this suggests lower risk, but still performs well.

• includeChainlinkDeFi OG including it continues to compete with ETH.

• PepeIt is an outstanding asset in the Ethereum ecosystem this cycle.

Which assets have higher beta values ​​for SOL?

Again, we have selected assets with strong fundamentals and suitable for product markets with multiple use cases.

*Please note that WIF, JUP, JITO, PYTH and DRIFT tokens are publicly traded for less than a year.Performance compared to SOL is measured by the length of time the assets exist in the market.

Key points:

According to daily market trends, Bonk and WIF have the highest beta coefficients against SOL.However, the beta coefficients for both assets are negative based on weekly and monthly market volatility.This shows that over a longer time frame, the two assets are inversely proportional to SOL.

From a monthly market trend perspective, Jupiter and Marinade are the only assets with positive beta coefficients in this group.This suggests that SOL itself is highly volatile – because smaller market caps in the ecosystem are less volatile over the monthly timeframe.

1-year rate of return vs. SOL rate of return

Key points:

• It’s really hard to get past SOL in this cycle.Tokens have risen by 638% in the past.

• Bonk is the only asset that performed well in public trading throughout the year (WIF started trading in the fourth quarter and JUP started trading in the first quarter).It does this in a huge way – up 87 times (!).

• It is worth noting that some projects are significantly better than SOL in a short period of time.For example, both Marinade and Orca appreciated 10 times in the 6 weeks of last year’s fourth quarter – highlighting the need to actively manage small assets.

in conclusion

• There is a reason why most venture capital firms struggle to surpass the leading assets in the cryptocurrency space.This is really hard.If you don’t study the market 24/7, have no advantages of quantitative strategies, or are unable to obtain the best seed trading process, then you’d better allocate strictly to the main assets.

• Congratulations to those who invested in Bonk early last year and stuck with it.You may outperform most of the world’s highest-paid fund managers.We will notice that on crypto Twitter, people seem to be more consistent in believing that WIF is the preferred Solana meme token for this cycle – emotionally.However, Bonk’s performance was far beyond expectations.We think it is very likely that it will continue to maintain this momentum later in the cycle.

• Want to know what the beta coefficient of SOL for the S&P 500 index over the past year (using monthly data)?8.37 (!).That’s why it’s been trading this cycle so far.

• Remember that there are many nuances to be filtered in terms of how we present the data in this report (mainly related to the time period measured).As mentioned earlier, some assets performed well in a short period of time, but performed well below the benchmark level at the end of the year – highlighting the need for active management.

• This report highlights how difficult it is to surpass the top L1.That being said, historically, altcoins rebounded late in the bull cycle—a situation we expect will take place later in the cycle.Remember, what could end up being a good performer is probably new projects—such as Celestia, Monad or Berachain (the latter two are not yet available).

• We believe thatA cautious approach is to get in touch with some large-cap high-quality meme coins (we hold Bonk).