Author: AJC; Source: Messari's upcoming "Crypto Themes for 2026" Cryptocurrency drives industry development Refocusing on cryptocurrencies is crucial because this is where most of the capital in the industry ultimately seeks to invest. The total market capitalization of cryptocurrencies is $3.26 trillion. Of this, Bitcoin (BTC) accounts for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in altcoins (L1), which together account for approximately $2.63 trillion (about 81% of all cryptocurrency capitalization), allocated to assets already regarded as currencies or perceived as potentially receiving a currency premium. Therefore, whether you are a trader, investor, capital allocator, or portfolio builder, understanding how the market allocates and withdraws currency premiums is crucial. In the cryptocurrency space, nothing influences valuation more than whether the market is willing to treat an asset as currency. Thus, predicting where future currency premiums will accumulate is arguably one of the most important elements in portfolio construction within this industry. So far, our focus has been primarily on Bitcoin, but other assets worth $0.83 trillion are also worth exploring; they may or may not be considered currencies. We expect Bitcoin to continue gaining market share from gold and other non-sovereign wealth stores in the coming years. But where does this leave L1? Does a rise in L1 mean all assets benefit, or will Bitcoin partially compensate for its gap with gold by extracting a monetary premium from L1? First, it's helpful to understand the current valuation levels of Level 1 (L1). The top four L1 tokens—Ethereum ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion), and SOL ($74.68 billion)—have a combined market capitalization of $686.58 billion, representing 83% of the L1 market. Beyond the top four, valuations drop rapidly (TRX's market capitalization is $26.67 billion), but interestingly, the long tail remains quite substantial. The total market capitalization of L1 tokens outside the top 15 is $18.06 billion, representing 2% of the total L1 market capitalization. Importantly, L1 market capitalization does not fully reflect the implied currency premium. There are three main L1 valuation frameworks: Currency premium Real economic value (REV), and The need for economic security Therefore, the market value of a project is not simply a result of the market treating it as currency. Currency premium, rather than revenue, is the main driver of L1 valuation. Despite these competing valuation frameworks, the market increasingly favors evaluating L1s from a revenue-driven perspective rather than a currency premium perspective. Over the past few years, the overall price-to-sales ratio (P/S) for all L1s with a market capitalization exceeding $1 billion has remained relatively stable, typically between 150 and 200x. However, this overall figure is misleading because it includes TRON and Hyperliquid. In the past 30 days, TRX and HYPE generated 70% of the group's revenue but only accounted for 4% of its market capitalization. After removing these two outliers, the truth becomes clear: even as revenue declined, the L1 valuation continued to rise. The adjusted price-to-sales ratio also continued to increase. November 30, 2021 - 40x November 30, 2022 - 212x November 30, 2023 - 137 times November 30, 2024 - 205x November 30, 2025 - 536x An explanation based on actual economic value might suggest that the market is simply pricing in future revenue growth. However, this explanation doesn't hold up to scrutiny. In the same L1 token portfolio (still excluding TRON and Hyperliquid), revenue declined in all but one year: 2021 – US$12.33 billion 2022 – US$4.89 billion (down 60% year-on-year) 2023 – $2.72 billion (down 44% year-on-year) 2024 – US$3.55 billion (31% year-on-year growth) 2025 – $1.7 billion annualized (down 52% year-over-year) We believe the simplest and most direct explanation is that these valuations are driven by a currency premium, rather than by current or future income. L1 tokens continue to underperform Bitcoin. If L1 valuations are driven by expectations of currency premiums, the next step is to understand what factors shape these expectations. A simple test is to compare L1 price performance with BTC. If currency premium expectations primarily reflect BTC's price movements, then these assets should perform similarly to BTC's beta. On the other hand, if currency premium expectations are driven by factors specific to each L1 asset, then we expect them to have a much weaker correlation with BTC and exhibit more idiosyncratic behavior. As a proxy metric for L1, we examined the performance of the top ten L1 tokens by market capitalization (excluding HYPE) relative to Bitcoin (BTC) since December 1, 2022. These ten assets represent approximately 94% of the total L1 market capitalization and are therefore representative of the sector as a whole. During this period, eight of these ten assets underperformed Bitcoin in absolute terms, with six lagging behind Bitcoin by 40% or more. Only two assets outperformed Bitcoin: XRP and SOL. XRP's excess return was only 3%, and given that XRP's historical fund flows have primarily come from retail investors, we will not overemphasize this return. The only asset that significantly outperformed Bitcoin was SOL, with a return 87% higher than Bitcoin's. A deeper analysis of SOL's seemingly superior performance reveals that it may actually be underperforming. During the same period that SOL outperformed BTC by 87%, Solana's fundamentals exhibited parabolic growth. Total DeFi locked value increased by 2988%, transaction fees by 1983%, and DEX trading volume by 3301%. By any measure, 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, the L1 crypto ecosystem needs more than just 200-300% growth. It needs 2000-3000% growth to generate double-digit excess returns. In conclusion, we believe that although L1 valuations are still based on expectations of future currency premiums, market confidence in these expectations is quietly weakening. At the same time, the market has not lost confidence in BTC's currency premium, and BTC's lead over L1 is widening. While cryptocurrencies technically don't require transaction fees or revenue to support their valuations, these metrics are crucial for L1. Unlike Bitcoin, the core value of L1 lies in building an ecosystem (including applications, users, throughput, economic activity, etc.) that underpins its token. However, if L1's ecosystem usage declines year after year, partly due to reduced transaction fees and revenue, then L1 will lose its sole competitive advantage over Bitcoin. Without genuine economic growth, the market will find it increasingly difficult to believe in these L1 cryptocurrency narratives. Looking to the future Looking ahead, we expect this trend to continue into 2026 and beyond. With a few exceptions, we anticipate Bitcoin will continue to erode the market share of other L1 assets. Their valuations are primarily driven by expectations of future currency premiums, which will steadily decline as the market increasingly recognizes Bitcoin as the most competitive cryptocurrency. While Bitcoin will face challenges in the coming years, these issues are unclear and influenced by numerous unknowns, insufficient to substantially support the current currency premiums of other L1 assets. For L1 platforms, the burden of proof has shifted. Their narratives are no longer as convincing as Bitcoin's, and they cannot rely indefinitely on widespread market frenzy to support their valuations. The era when the idea that "we might one day become money" was enough to justify trillion-dollar valuations is over. Investors now have access to a decade's worth of data showing that L1's currency premium has only been sustainable during periods of rapid platform growth. Aside from these rare periods of explosive growth, L1 has consistently lagged behind Bitcoin, and when growth slows, the currency premium disappears.Author: AJC; Source: Messari's upcoming "Crypto Themes for 2026" Cryptocurrency drives industry development Refocusing on cryptocurrencies is crucial because this is where most of the capital in the industry ultimately seeks to invest. The total market capitalization of cryptocurrencies is $3.26 trillion. Of this, Bitcoin (BTC) accounts for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in altcoins (L1), which together account for approximately $2.63 trillion (about 81% of all cryptocurrency capitalization), allocated to assets already regarded as currencies or perceived as potentially receiving a currency premium. Therefore, whether you are a trader, investor, capital allocator, or portfolio builder, understanding how the market allocates and withdraws currency premiums is crucial. In the cryptocurrency space, nothing influences valuation more than whether the market is willing to treat an asset as currency. Thus, predicting where future currency premiums will accumulate is arguably one of the most important elements in portfolio construction within this industry. So far, our focus has been primarily on Bitcoin, but other assets worth $0.83 trillion are also worth exploring; they may or may not be considered currencies. We expect Bitcoin to continue gaining market share from gold and other non-sovereign wealth stores in the coming years. But where does this leave L1? Does a rise in L1 mean all assets benefit, or will Bitcoin partially compensate for its gap with gold by extracting a monetary premium from L1? First, it's helpful to understand the current valuation levels of Level 1 (L1). The top four L1 tokens—Ethereum ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion), and SOL ($74.68 billion)—have a combined market capitalization of $686.58 billion, representing 83% of the L1 market. Beyond the top four, valuations drop rapidly (TRX's market capitalization is $26.67 billion), but interestingly, the long tail remains quite substantial. The total market capitalization of L1 tokens outside the top 15 is $18.06 billion, representing 2% of the total L1 market capitalization. Importantly, L1 market capitalization does not fully reflect the implied currency premium. There are three main L1 valuation frameworks: Currency premium Real economic value (REV), and The need for economic security Therefore, the market value of a project is not simply a result of the market treating it as currency. Currency premium, rather than revenue, is the main driver of L1 valuation. Despite these competing valuation frameworks, the market increasingly favors evaluating L1s from a revenue-driven perspective rather than a currency premium perspective. Over the past few years, the overall price-to-sales ratio (P/S) for all L1s with a market capitalization exceeding $1 billion has remained relatively stable, typically between 150 and 200x. However, this overall figure is misleading because it includes TRON and Hyperliquid. In the past 30 days, TRX and HYPE generated 70% of the group's revenue but only accounted for 4% of its market capitalization. After removing these two outliers, the truth becomes clear: even as revenue declined, the L1 valuation continued to rise. The adjusted price-to-sales ratio also continued to increase. November 30, 2021 - 40x November 30, 2022 - 212x November 30, 2023 - 137 times November 30, 2024 - 205x November 30, 2025 - 536x An explanation based on actual economic value might suggest that the market is simply pricing in future revenue growth. However, this explanation doesn't hold up to scrutiny. In the same L1 token portfolio (still excluding TRON and Hyperliquid), revenue declined in all but one year: 2021 – US$12.33 billion 2022 – US$4.89 billion (down 60% year-on-year) 2023 – $2.72 billion (down 44% year-on-year) 2024 – US$3.55 billion (31% year-on-year growth) 2025 – $1.7 billion annualized (down 52% year-over-year) We believe the simplest and most direct explanation is that these valuations are driven by a currency premium, rather than by current or future income. L1 tokens continue to underperform Bitcoin. If L1 valuations are driven by expectations of currency premiums, the next step is to understand what factors shape these expectations. A simple test is to compare L1 price performance with BTC. If currency premium expectations primarily reflect BTC's price movements, then these assets should perform similarly to BTC's beta. On the other hand, if currency premium expectations are driven by factors specific to each L1 asset, then we expect them to have a much weaker correlation with BTC and exhibit more idiosyncratic behavior. As a proxy metric for L1, we examined the performance of the top ten L1 tokens by market capitalization (excluding HYPE) relative to Bitcoin (BTC) since December 1, 2022. These ten assets represent approximately 94% of the total L1 market capitalization and are therefore representative of the sector as a whole. During this period, eight of these ten assets underperformed Bitcoin in absolute terms, with six lagging behind Bitcoin by 40% or more. Only two assets outperformed Bitcoin: XRP and SOL. XRP's excess return was only 3%, and given that XRP's historical fund flows have primarily come from retail investors, we will not overemphasize this return. The only asset that significantly outperformed Bitcoin was SOL, with a return 87% higher than Bitcoin's. A deeper analysis of SOL's seemingly superior performance reveals that it may actually be underperforming. During the same period that SOL outperformed BTC by 87%, Solana's fundamentals exhibited parabolic growth. Total DeFi locked value increased by 2988%, transaction fees by 1983%, and DEX trading volume by 3301%. By any measure, 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, the L1 crypto ecosystem needs more than just 200-300% growth. It needs 2000-3000% growth to generate double-digit excess returns. In conclusion, we believe that although L1 valuations are still based on expectations of future currency premiums, market confidence in these expectations is quietly weakening. At the same time, the market has not lost confidence in BTC's currency premium, and BTC's lead over L1 is widening. While cryptocurrencies technically don't require transaction fees or revenue to support their valuations, these metrics are crucial for L1. Unlike Bitcoin, the core value of L1 lies in building an ecosystem (including applications, users, throughput, economic activity, etc.) that underpins its token. However, if L1's ecosystem usage declines year after year, partly due to reduced transaction fees and revenue, then L1 will lose its sole competitive advantage over Bitcoin. Without genuine economic growth, the market will find it increasingly difficult to believe in these L1 cryptocurrency narratives. Looking to the future Looking ahead, we expect this trend to continue into 2026 and beyond. With a few exceptions, we anticipate Bitcoin will continue to erode the market share of other L1 assets. Their valuations are primarily driven by expectations of future currency premiums, which will steadily decline as the market increasingly recognizes Bitcoin as the most competitive cryptocurrency. While Bitcoin will face challenges in the coming years, these issues are unclear and influenced by numerous unknowns, insufficient to substantially support the current currency premiums of other L1 assets. For L1 platforms, the burden of proof has shifted. Their narratives are no longer as convincing as Bitcoin's, and they cannot rely indefinitely on widespread market frenzy to support their valuations. The era when the idea that "we might one day become money" was enough to justify trillion-dollar valuations is over. Investors now have access to a decade's worth of data showing that L1's currency premium has only been sustainable during periods of rapid platform growth. Aside from these rare periods of explosive growth, L1 has consistently lagged behind Bitcoin, and when growth slows, the currency premium disappears.