Continuing on the theme of fee-related valuation, we next take a quick look at valuation compared to age (again using fully diluted market cap to trailing 365 day fees, and using days since the token-generation-event for age). A glance at the largest assets by market cap shows a lot of older token projects: The top 10 have an average age of over 7 years, compared to the rest of the top 100 which has an average age of under 5 years. The question being: are projects getting a valuation boost simply because they’ve been around for a long time? In other words: is there a strong Lindy effect in crypto?

Last week, we compared top-line fees (transaction costs, fees, interest paid, etc.) to fully diluted market cap and noted the wide range of fee generation across digital assets, the Layer 1 premium, and Bitcoin’s unique position. This week, we add growth to the picture.

There are many ways to assess the value of a token. When we survey the landscape of crypto projects, we try to assess diverse aspects like fee generation, usage, addressable market, growth, and token structures that shape value accrual. Given the highly disparate nature of crypto projects, such exercises can become complex, especially when trying to compare projects, particularly across different sectors.

Sometimes it’s worth taking a step back and viewing the market through a more simplified lens.

Bitcoin hit a fresh all-time-high this week, and ‘alts’ are heating up as well. Notably, over 80% of tokens in the Top 150 have outperformed Bitcoin month-to-date, by an average margin of ~19%. As altcoins rally, concerns about having “missed the opportunity” tend to surface. However, on average, these tokens are still trading at just 30% of their prior all-time highs, suggesting substantial potential upside remains. In fact, only a small subset of assets are currently trading within 5% of their historical peak.

Amid recent market turbulence, we’ve revisited pairwise correlations - comparing the movements of tokens relative to other tokens in the top 100 and doing the same for stocks in the Nasdaq-100 index - and tracking how these relationships evolve. Since our last post on this subject in summer 2024, token correlations initially declined into year-end before rising again alongside Q1 geopolitical shocks.

Bitcoin is at all-time highs again. But what about the rest of the digital asset space? Looking out at the Top 150 tokens by market cap, only a small handful have approached all-time-highs (ATH) in the last week. Those tokens have since fallen off those highs, leaving BTC the sole token in the Top 150 within 5% of its ATH. For comparison, as recently as the end of 2024, 12 other tokens were within 5% of their ATHs. On average, tokens in the Top 150 after BTC are trading at <23% of their all-time highs.

The macro environment has sent global markets into turmoil. Assets have notched extreme price moves across markets, but the relative magnitude of these moves vs history has varied– particularly in the comparison between digital assets and US equities.

There seems to be a common approach to digital assets that looks at the performance and/or volatility of Bitcoin over the last few years vs other digital assets and concludes that Bitcoin alone makes for a satisfactory digital assets allocation.

In no other portfolio construction ‘process’ does this make sense - why should it in crypto?

Four months after the election, only 30% of tokens in the Top 100 at the time of the election are above their pre-election levels. The median token in the group is down 22%.

While some level of re-rating from exuberant post-election levels was inevitable, seeing most of the market down materially vs pre-election levels seems overdone. It’s hard to argue that the fundamental case for crypto now is worse than pre-election. In fact, it’s arguably much better, given the walk-back of many regulatory actions against crypto firms and new government focus on fostering crypto markets in the US.

The latest bout of volatility in digital asset markets has commentators questioning if the bull market is over. Although recent moves have been violent, it is not unlike digital assets to experience sharp, painful drawdowns during bull markets. Even looking at Bitcoin, one of the less volatile digital assets, there have been 8 periods where its price has fallen more than 20% in a rolling 90 day period, since the latest up-trend began in November of 2022. The latest drawdown marks the 9th. Meanwhile, Bitcoin is still up over 440% since the trough.

Liquidity can be a concern for investors looking to deploy meaningful capital in digital assets. However, as the market has grown and evolved, liquidity across a broader number of tokens has improved, and should not bar investors from looking further out the spectrum of tokens to gain diversified exposure. Mega-cap assets like Bitcoin, Ethereum, Solana, and Ripple show trading volumes in line with the top 25 most traded US public equities, based on 30 day average daily volume (ADV). However, as we have frequently stressed, investors should consider looking past just the largest names in order to capture exposure to the varied themes and opportunities of digital assets. Here, liquidity has also improved.

There remains a misconception that digital assets are a monolithic asset class, dominated by beta and lacking differentiation. The line of thinking goes: “everything moves together, so why not buy only Bitcoin and be done with it.”

We disagree.

Bitcoin and Ethereum are dominant digital assets– they prevail in mindshare, in market cap, and in investors' portfolios. It is easy for crypto investors to disregard the remaining universe of "altcoins", which seem minute in comparison. However, Outerlands Capital believes investors would be remiss to not consider fundamentals before making such a hasty write off, as actual onchain usage tells a very different story.

We believe in a fundamental data-driven future for investing in digital assets. However, the data landscape for investors evaluating crypto fundamentals is still evolving. Analyzing a broad universe of crypto projects requires considerable time and effort spent understanding and reconciling different vendors and sources. Each source has its own approach to gathering, calculating, and presenting data, which means the metrics you rely on can vary significantly depending on where you look.

November was a big month for crypto. An equal-weight index* of the Top 100 cryptocurrencies by market cap posted a nearly 80% gain in November, just narrowly missing the top spot for a month's performance in the last 5 years.

Notably, this broader universe of projects outperformed Bitcoin on its own by over 40% (the 4th best level of outperformance in a month in the last 5 years). Impressively, this performance for Bitcoin and alts resulted in record increases in market capitalization, with Bitcoin’s market cap growing over $500bn, and the other 99 projects growing by a combined $434bn, for a total market cap increase of nearly $1trn.

The crypto market’s strong post-US election rally has left some asking if they’ve already missed the bull market. While Bitcoin may be at all-time highs, this isn’t the case for the vast majority of the crypto market.

For institutional investors, volatility remains a key barrier to investing in digital assets. We’ve discussed in the past how the volatility profiles of Bitcoin and Ethereum are now in line with popular tech stocks– but what about the rest of crypto?