jakiro
Author: AJC, Messari Research Manager; Source: X, @AvgJoesCrypto; Compiler: Shaw Bitcoin Vision
Cryptocurrency drives industry growth
Refocusing cryptocurrencies is crucial because that’s what most money in the industry is ultimately trying to invest in.The total market capitalization of the cryptocurrency market reaches $3.26 trillion.Among them, Bitcoin accounts for 1.80 trillion US dollars, or 55%.Of the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in other Layer-1 protocol (L1) tokens.A total of approximately $2.63 trillion (approximately 81% of all funds in cryptocurrencies) is allocated to assets that the market already views as money or believes are likely to receive a currency premium.
Given this, whether you are a trader, investor, capital allocator or developer, it is critical to understand how the market allocates and withdraws currency premiums.In the cryptocurrency space, nothing affects valuation more than the market’s willingness to treat an asset as a currency.Therefore, predicting where currency premiums will accumulate in the future is arguably the most important element of portfolio construction in this sector.
So far, we’ve focused primarily on Bitcoin, but there are other $0.83 trillion worth of assets worth exploring that may or may not be considered currencies.As mentioned previously, we expect Bitcoin to continue to take market share from gold and other non-sovereign stores of wealth in the coming years.But what does this mean for L1 tokens?Does a rising tide lift all boats, or is Bitcoin partially making up for the gap with gold by taking monetary premium away from other L1 tokens?
First, it’s helpful to take a look at the current valuation of L1 tokens.The top four L1 tokens are Ethereum ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion) and Solana ($74.68 billion). Their total market value is $686.58 billion, accounting for 83% of the entire L1 altcoin market.After the top four, valuations dropped rapidly (TRX market cap is $26.67 billion), but interestingly the long tail segment remains sizable.The total market value of L1 tokens outside the top 15 is US$18.06 billion, accounting for 2% of the total market value of the entire L1 altcoin market.
Importantly, the market cap of L1 tokens does not purely reflect the implied monetary premium.There are three main types of valuation frameworks:
(i) Currency premium,
(ii) Real Economic Value (REV), and
(iii) the need for economic security,
Therefore, the market capitalization of an item does not simply arise from the market viewing it as currency.
Currency premium is the main driver of L1 valuation, not revenue
Despite these competing valuation frameworks, the market increasingly prefers to value L1 tokens from a monetary premium perspective rather than a revenue-driven perspective.The overall price-to-sales ratio (P/S) of all L1 tokens with a market capitalization over $1 billion has remained relatively stable over the past few years, typically between 150x and 200x.However, this overall number is misleading as it includes Tron and Hyperliquid.Over the past 30 days, TRX and HYPE generated 70% of the category’s revenue but accounted for only 4% of the market capitalization.After excluding these two outliers, the truth is obvious: even as revenue declines, L1 valuations have been rising.Adjusted price-to-sales ratios also continued to move higher.
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November 30, 2021 – 40x
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November 30, 2022 – 212 times
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November 30, 2023 – 137 times
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November 30, 2024 – 205 times
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November 30, 2025 – 536 times
A revenue-based explanation might argue that the market is simply pricing in future revenue growth.However, this explanation does not stand up to scrutiny.In the same L1 token mix (still excluding TRX and HYPE), revenue is declining in all years except 2024:
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2021 – $12.33 billion
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2022 – US$4.89 billion (down 60% year-on-year)
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2023 – US$2.72 billion (down 44% year-on-year)
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2024 – US$3.55 billion (up 31% year-on-year)
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2025 – US$1.7 billion (down 52% year-on-year)
We believe the simplest and most straightforward explanation is that these valuations are driven by currency premiums rather than current or future revenue.
L1 tokens continue to underperform Bitcoin
If L1 token valuations are driven by currency premium expectations, the next step is to understand what exactly shapes these expectations.A simple way to test this is to compare the price performance of L1 tokens to Bitcoin.If currency premium expectations primarily reflect Bitcoin’s price volatility, then these assets should perform similarly to Bitcoin’s beta.On the other hand, if currency premium expectations are driven by factors unique to each L1 asset, then we would expect their correlation to Bitcoin to be much weaker and their performance to be more idiosyncratic.
To better represent the performance of L1 tokens, we examined the performance of the top ten L1 tokens by market capitalization (excluding HYPE) relative to Bitcoin since December 1, 2022.These ten assets account for approximately 94% of the total market capitalization of the L1 token market and are therefore representative of the sector as a whole.Eight of these ten assets have underperformed Bitcoin in absolute terms during this period, with six trailing Bitcoin by 40% or more.Only two assets performed better than Bitcoin: XRP and SOL.XRP’s excess return is only 3%, which we wouldn’t overemphasize given that XRP’s historical capital flows have primarily come from retail investors.The only asset that significantly outperformed Bitcoin was SOL, which returned 87% more than Bitcoin.
Digging deeper into SOL’s outperformance, it may actually be underperforming.During the same period in which SOL outperformed Bitcoin by 87%, Solana’s fundamentals grew exponentially.Decentralized Finance (DeFi) total locked value (TVL) increased by 2988%, handling fees increased by 1983%, and decentralized exchange (DEX) transaction volume increased by 3301%.No matter how you look at it, Solana’s ecosystem has grown 20 to 30 times since the end of 2022.However, as an asset designed to capture this growth, SOL has only outperformed Bitcoin by 87%.
Read it again.
To achieve significant outperformance against Bitcoin, the L1 cryptocurrency ecosystem would need growth of 2000%-3000% to generate double-digit excess returns.
To sum up, we believe that although L1’s valuation is still based on expectations of future currency premiums, the market’s confidence in these expectations is quietly weakening.At the same time, the market has not lost faith in Bitcoin’s monetary premium, and Bitcoin’s lead over L1 tokens continues to grow.
While cryptocurrencies don’t technically require fees or revenue to support their valuations, these metrics are crucial to L1.Unlike Bitcoin, L1’s core value lies in building an ecosystem (including applications, users, throughput, economic activities, etc.) that supports its tokens.However, if L1’s ecosystem usage declines year over year, in part due to declining fees and revenue, then the L1 token will lose its only competitive advantage over Bitcoin.Without real economic growth, it becomes increasingly difficult for the market to believe the cryptocurrency narrative of these L1 tokens.
Looking to the future
Looking forward, we do not expect this trend to reverse in 2026 and beyond.With few exceptions, we expect L1 altcoin assets to continue losing market share to Bitcoin.Their valuations are primarily driven by expectations of future currency premiums, and these valuations will steadily decline as the market increasingly recognizes Bitcoin as the most competitive of all cryptocurrencies.Although Bitcoin will face challenges in the coming years, these issues are still unclear and are affected by many unknown factors, which are not enough to constitute substantial support for the current currency premium of other L1 assets.
For L1 platforms, the burden of proof has shifted.Compared to Bitcoin, their narrative is no longer compelling, nor can they rely indefinitely on widespread market mania to prop up their valuations.The days when the idea that “we might one day become money” was enough to support a trillion-dollar valuation are fading.Investors now have a decade’s worth of data showing that L1’s currency premium can only be maintained during periods of rapid platform growth.Outside of these rare outbursts, L1 tokens have always lagged behind Bitcoin, and once growth slows, the monetary premium disappears as well.
