Stablecoin Flows Emerge as Leading Signal for L1 Market Performance: Research

TLDR:

• Artemis stablecoin factor posted 83.6% annualized returns with minimal dependence on Bitcoin direction.
• The strategy gained 6.8% monthly across BTC down months, showing resilience during crypto market weakness.
• Mid-cap chains including Polygon and Sei generated 84% of total stablecoin factor returns over five years.
• Stablecoin flows remained Artemis’ least-correlated alpha factor with only 6.1% variance overlap.

Stablecoin flows are emerging as one of crypto’s clearest signals for layer-1 market rotation. 

New research from Artemis shows capital moving through stablecoins consistently preceded stronger relative returns across major chains. The firm’s five-year backtest found the strategy remained largely detached from broad crypto market direction. 

Results also showed the factor produced gains during months when Bitcoin posted losses.

Stablecoin Flows Predict L1 Returns Across Market Cycles

Artemis said its weekly rebalanced long-short factor generated a 1.67 Sharpe ratio over five years. The model delivered an annualized return of 83.6% during the test period.

The same backtest recorded a maximum drawdown of 43.9%. A volatility-targeted overlay lowered drawdown to 31.9% while reducing Sharpe to 1.17.

The data pointed to minimal dependence on Bitcoin’s broader trend. Artemis reported a market beta of -0.03 and an R² of 0.1%.

That structure became more visible during weaker crypto conditions. Across 30 BTC-negative months, the factor returned 6.8% monthly while Bitcoin fell 10.9%.

Artemis also measured annualized alpha at 73.8% after controlling for market exposure. The reported t-statistic reached 3.31 with significance at the 1% level.

The firm noted the strategy’s out-of-sample Sharpe estimate still held at 0.96 after applying a degrees-of-freedom haircut. That kept stablecoin flows among its strongest market-neutral crypto signals.

Mid-Cap Chains Drive Stablecoin Factor Alpha

Most of the gains came from the long side of the book. Artemis said 84% of returns originated from long exposure to chains attracting positive stablecoin inflows.

Mid-cap networks dominated the return profile. Polygon, Mantle, Optimism, BSC, and Sei contributed 84% of total factor returns.

The research also showed limited overlap with Artemis’ broader factor suite. Maximum pairwise correlation across the stack measured only 0.16.

Even after spanning regression against all other factors, the stablecoin signal retained a 2.54 t-statistic. Artemis said just 6.1% of variance overlapped with other models.

Performance also stayed resilient through distinct market phases. The factor returned 262% in 2021, 47% in 2022, and 315% in 2025.

Its only negative year came in 2024 with a 13% decline. Artemis linked that period to stagnant aggregate stablecoin supply growth before recovery resumed.

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