jakiro
Author:AJC; Source: Messari’s upcoming “2026 Crypto Topics”
Cryptocurrency drives industry development
Refocusing cryptocurrencies is critical because that’s what most capital in the industry is ultimately trying to invest in.Cryptocurrencies have a total market capitalization of $3.26 trillion.Of that, Bitcoin (BTC) accounts for $1.80 trillion, or 55%.Of the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in copycat L1,Together, they total approximately $2.63 trillion (approximately 81% of all capital in cryptocurrencies), allocated to assets that the market already views as money or believes may earn a currency premium.
Given this, whether you are a trader, investor, capital allocator or builder, 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 single 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.We expect Bitcoin to continue taking market share from gold and other non-sovereign stores of wealth in the coming years.ButWhere does this leave L1?Does a rising tide lift all boats, meaning all assets will benefit, or will Bitcoin partially make up for the gap with gold by extracting a monetary premium from L1?
First, it’s helpful to take a look at L1’s current valuation level.The top four L1s, Ethereum ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion), and SOL ($74.68 billion), have a total market value of $686.58 billion, accounting for 83% of the L1 sector.After the top four, valuations drop rapidly (TRX has a market capitalization of $26.67 billion), but interestingly, the long-tail portion is still considerable.The total market value of L1 outside the top 15 is US$18.06 billion, accounting for 2% of the total market value of L1.
Importantly, L1 market capitalization does not fully reflect the implied currency premium.There are three main types of L1 valuation frameworks:
(i) Currency premium,
(ii) Real Economic Value (REV), and
(iii) the need for economic security,
Therefore, the market capitalization of an item is not simply the result of the market viewing it as money.
Currency premium, not revenue, is the main driver of L1 valuation
Despite these competing valuation frameworks, the market increasingly prefers to value L1 from a revenue-driven perspective rather than a monetary premium perspective.The overall price-to-sales ratio (P/S) of all L1s with a market capitalization of 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 Hrperliquid.Over the past 30 days, TRX and HYPE generated 70% of the group’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 – 212x
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November 30, 2023 – 137 times
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November 30, 2024 – 205x
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November 30, 2025 – 536x
An explanation based on real economic value might argue that the market is simply pricing in future revenue growth.However, this explanation does not stand up to scrutiny.Across the same L1 token mix (still excluding TRON and Hyperliquid), revenue declined in all but one year:
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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 – Annualized USD 1.7 billion (down 52% year-on-year)
We think,The simplest and most straightforward explanation is that these valuations are driven by currency premiums, not current or future earnings.
L1 tokens continue to underperform Bitcoin
If L1 valuations are driven by currency premium expectations, the next step is to understand what exactly shapes these expectations.A simple way to check this is to compare L1’s price performance to BTC.If currency premium expectations primarily reflect BTC’s price action, then these assets should perform similarly to BTC’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 with BTC to be much weaker and their behavior to be more idiosyncratic.
As a proxy indicator for L1, weExamined the performance of the top ten L1 tokens by market capitalization (excluding HYPE) relative to Bitcoin (BTC) since December 1, 2022.These ten assets account for approximately 94% of the total market capitalization of the L1 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 come primarily 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 BTC by 87%, Solana’s fundamentals grew parabolically.The total locked value of DeFi increased by 2988%, handling fees increased by 1983%, and 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 BTC by 87%.
Read it again.
To achieve significant excess returns in the game against BTC, L1’s crypto ecosystem needs to grow by more than 200-300%.It would need 2000-3000% growth to generate double-digit excess returns.
In summary, we believe thatAlthough L1’s valuation is still based on expectations of future currency premiums, market confidence in these expectations is quietly waning.At the same time, the market has not lost confidence in BTC’s currency premium, and BTC’s lead over L1 is still growing.
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 L1 will lose its only competitive advantage over Bitcoin.Without real economic growth, it becomes increasingly difficult for the market to believe these L1 cryptocurrency narratives.
Looking to the future
Looking ahead, we do not expect this trend to reverse in 2026 and beyond.With few exceptions, we expect other L1 assets to continue to lose 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 bursts, L1 has always lagged Bitcoin, and when growth slows, the currency premium disappears.
