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Author: Grayscale Research team; Compilation: 0xjs@Bitchain Vision
Key points:
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According to the FTSE/Grayscale Crypto Sectors Series Index, the cryptocurrency market consolidated sideways in the Q3 2024 quarter.
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Changes in the FTSE/Grayscale series index this year highlight the emerging themes of the digital asset industry, including the rise of decentralized artificial intelligence platforms, efforts to tokenize traditional assets, and the popularity of memecoin.
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Although Ethereum has not performed as well as Bitcoin so far this year, it outperforms the cryptocurrency industry index of the smart contract platform.Grayscale Research believes that despite the fierce competition in the smart contract field, Ethereum should still maintain its advantage for a variety of reasons.
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We have updated the Grayscale Research Top 20 tokens.The top 20 tokens represent diversified assets in the cryptocurrency space, which we believe have high potential in the coming quarter.Q4New assets include SUI, TAO, OP, HNT, CELO and UMA.
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All assets on our top 20 representative list have high price volatility and should be considered high risk; the U.S. election can also be a major risk event in the crypto market.
Grayscale Crypto Sectors provides a comprehensive framework for understanding the scope of investable digital assets and their relationship to underlying technologies.Based on this framework and in partnership with FTSE Russell, we developed the FTSE Grayscale Crypto Sectors index series to measure and monitor crypto asset classes (Figure 1).Grayscale Research incorporates the Crypto Sectors index into its ongoing analysis of the digital asset market.
Figure 1: Cryptocurrency Industry Index measures the performance of this asset class
The cryptocurrency industry framework is designed to update dynamically with the ever-evolving digital asset market and rebalance at the end of each quarter.The latest quarterly rebalancing process ends on September 20.Since the beginning of this year, the index rebalancing process has led to major changes in the index composition, reflecting the changes in new exchange listings, asset liquidity and market performance.This year’s update to the cryptocurrency industry index highlights emerging themes in the digital asset industry, including the rise of decentralized AI platforms (e.g. TAO), efforts to tokenize traditional assets (e.g. ONDO, OM and GFI), and memecoin’sPopular (e.g. PEPE, WIF, FLOKI, and BONK).
From a return perspective, the Bitcoin and Currencies Crypto sectors have surpassed other segments in 2024 (Figure 2), which may reflect the successful launch of the spot Bitcoin Exchange Trading Product (ETP) in the U.S. market and theFavorable macro background for assets (see our previous quarterly report for more details”Grayscale Research Insights: 2024 Q3 cryptocurrency field”).
Figure 2: Bitcoin performed well this year, Ethereum performed well
Ethereum rose 13% this year, lower than Bitcoin, but outperformed most other crypto assets.For example, our Crypto Industry Market Index (CSMI), which measures the return on the entire asset class, has fallen by about 1% this year.In fact, excluding Ethereum, the smart contract platform crypto industry index fell by about 11%, so it performed significantly better than its segment.Of all assets within our crypto industry framework, Ethereum has a return of approximately 70-75 percentiles so far this year.So, while Ethereum appreciates less than Bitcoin, it still performs well this year compared to the crypto industry and the broader CSMI.
Smart contract platform focus
Unlike Bitcoin, which dominates the cryptocurrency field, Ethereum faces fierce competition in the cryptocurrency field of smart contract platform.This year,Many smart contract alternative platforms have gained attention, including Solana, Toncoin, Tron and Near, as well as new members of the cryptocurrency space like Sui.These assets are all competing for fee income, and the compelling user experience provided by some smart contract alternative platforms could lead to a decline in Ethereum’s Tier 1 fee market share.
At the same time, Ethereum has multiple comparative advantages that support its position in the cryptocurrency field of smart contract platform (Figure 3).On top of that, it remains the leader in the category, with the largest number of applications, the largest number of developers, the highest 30-day fee income, and the greatest value locked in smart contracts.When the largest Ethereum Layer 2 network is included, it has the second only to Solana’s daily active users.
Figure 3: Ethereum is the leader in the fee income category of smart contract platforms
With the continued adoption of public chain technology, Grayscale Research expects growth in the entire smart contract platform encryption field (in terms of users, transactions and fees), which may benefit all assets in the category to some extent.Since Ethereum is the leader in this category, it is hard to imagine that the period of continued growth in the smart contract platform space will not benefit Ethereum, partly because of Ethereum’s existing network effects.So despite the fierce competition, we believe Ethereum remains a compelling asset in the crypto space of smart contract platform.
Additionally, Ethereum benefits from certain features that may temporarily block its competitors.These features include high network reliability (limited disruption), high economic security, high decentralization, and a clearer regulatory status in the United States.Encouraging adoption trends have also emerged in the Ethereum ecosystem, including tokenization, forecasting markets and the construction of large companies such as Sony.For all these reasons,Grayscale Research continues to see Ethereum as a very compelling investment theme.
Grayscale Research Top 20 Tokens
Each quarter, the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process of the FTSE/Grayscale cryptocurrency industry index series.After this process, Grayscale Research lists the top 20 assets in the cryptocurrency industry.The top 20 assets represent diversified assets in the cryptocurrency industry, which we believe have high potential in the coming quarter (Figure 4).Our approach combines a range of factors including network growth/adoption, upcoming catalysts, fundamental sustainability, token valuation, token supply inflation and potential tail risks.
In Q4, we included 6 new assets into the Top 20 tokens:
1. Sui:Provides high-performance 1-layer smart contract blockchain for innovative applications.
2. Bittensor:A platform for promoting the development of open and global artificial intelligence systems.
3. Optimism:Ethereum expansion project based on optimistic Rollup, an extension solution.
4. Helium:Decentralized wireless networks running on Solana are the leader in the category of decentralized physical infrastructure (DePin).
5. Celo:A mobile-first blockchain project is transitioning to the Ethereum layer 2 network, focusing on stablecoins and payments.
6. UMA protocol:An optimistic oracle network that serves the leading blockchain-based prediction market Polymarket (and other protocols).
Figure 4: High-potential assets in the cryptocurrency sector in Q4 2024
The newly included assets reflect several crypto market themes that Grayscale Research focuses on.
Both Sui and Optimism can be considered as examples of high-performance infrastructure.
SuiIt is a third-generation blockchain developed by a team of former Meta engineers.Two months ago, Sui had a network upgrade, with transaction speeds up 80%, surpassing Solana; this led to a recent increase in adoption of the network.
Optimismis an Ethereum Layer 2 that is helping to scale the Ethereum network and developing a framework for building scaling solutions called “Super Chain”, Coinbase Layer 2 BASE and Sam Altman’s Worldcoin buildBoth layers are using this framework.
Both Celo and UMA benefit from a unique adoption trend: the use of stablecoins and the forecast market.
CeloIt is a blockchain focused on stablecoins and payments in developing countries, which has gained widespread attention in Africa, led by Opera browser’s MiniPay application.Celo recently surpassed Tron to become the most used blockchain for stablecoin by daily address, and is currently migrating from standalone blockchain to Ethereum Layer 2 in Optimism’s hyperchain framework.
UMAIt is an oracle network used by Polymarket, a breakthrough application for the cryptocurrency election year.UMA records solutions for the results of each Polymarket event contract on the chain and facilitates voting for disputes on Polymarket results, ensuring that solutions are not disturbed by centralization, arbitrary or bias.
HeliumThe addition reflects our preference for category leaders and projects with sustainable income.Helium is a leader in the DePIN category (Decentralized Physical Infrastructure Network) leveraging a decentralized model to efficiently allocate resources for wireless network coverage and connectivity, and reward participants who maintain network infrastructure.Helium has expanded to more than 1 million hotspots and 100,000 mobile users, generating more than $2 million in network expense revenue so far this year.
Finally, although we have been focusing on the decentralized AI theme for some time, Bittensor has not entered our cryptocurrency industry framework until now due to improved market structure (especially more available pricing sources and higher liquidity)..Bittensor has become an outstanding player in the cross-cutting field of Crypto and AI, and has attracted a lot of attention by leveraging economic incentives to create a global decentralized platform for AI innovation.
This quarter,We replaced the following items from the top 20: Render, Mantle, ThorChain, Pendle, Illuvium and Raydium.Grayscale Research continues to see the value of these projects, which remain an important part of the crypto ecosystem.However, we believe that the revised Top 20 list could lead to a more attractive risk-adjusted return for the next quarter.
Investing in crypto asset classes involves risks, some of which are unique to crypto asset classes, including smart contract vulnerabilities and regulatory uncertainties.Additionally, all assets in our top 20 are highly volatile and should be considered high risk and are not suitable for all investors.
Finally, broader macroeconomic and financial market developments may impact crypto asset valuations, and the November U.S. election should be seen as a major risk event for crypto markets.Former President Trump has apparently embraced the digital asset industry, and Vice President Harris recently said her administration “will encourage innovative technologies such as artificial intelligence and digital assets while protecting our consumers and investors.”
Given the risk of this asset class, any investment in digital assets should be considered in the context of the portfolio and the financial objectives of investors are taken into account.
