Grayscale Crypto Market Outlook for the Fourth Quarter: Bitcoin Price, Ethereum Stability, New Assets Entering the List
Crypto markets moved sideways in the third quarter of 2024, as assessed by the FTSE/Grayscale Crypto Industry Index Series.
This year’s changes to the FTSE/Grayscale index series highlight emerging trends in the digital asset industry, including the rise of decentralized artificial intelligence (AI) platforms, efforts to tokenize traditional assets and the popularity of memecoins.
Although Ethereum has underperformed Bitcoin this year, it has still outperformed the Smart Contract Platform Crypto Industry Index. Grayscale research believes that despite fierce competition in the smart contract field, Ethereum still has multiple reasons to remain competitive.
We’ve updated the top 20 from Grayscale research. The top 20 represents a diverse set of assets across the crypto industry that have high potential in the coming quarter. New assets added this quarter are SUI, TAO, OP, HNT, CELO and UMA.
All assets in our top 20 list have high volatility and are considered high risk; the US elections may also be a significant risk factor for the crypto market.
Grayscale crypto categories provide a comprehensive framework for understanding the universe of investable digital assets and their relationship to the underlying technology. Based on this framework, and in partnership with FTSE Russell, we developed the FTSE Grayscale Crypto Industry Index Series to measure and track the crypto asset class (Figure 1). Grayscale Research has included the Crypto Industry Index in its ongoing study of digital asset markets.
Crypto Industry Index Measures Asset Class Performance
The Crypto Industry Framework is designed to be dynamically updated with the changing digital asset market and rebalanced at the end of each quarter.
The latest quarterly rebalancing process was completed on September 20. Since the beginning of the year, index rebalancing has brought significant changes to the index composition, reflecting new exchange listings, changes in asset liquidity and market performance.
This year’s update to the Crypto Industry Index showcases emerging themes in the digital asset industry, including the rise of decentralized AI platforms (e.g., TAO), tokenization efforts for traditional assets (e.g., ONDO, OM, and GFI), and the rise of memecoins Popularity (for example, PEPE, WIF, FLOKI, and BONK).
From a earnings perspective, the Bitcoin and Currency Crypto category is expected to outperform other market sectors in 2024 (Figure 2), likely reflecting the successful launch of spot Bitcoin exchange-traded products (ETPs) in the U.S. market, as well as Favorable macro environment (for more details, please refer to our previous quarterly report (Grayscale Research Insights: Crypto Industry in Q3 2024)).
Ethereum has underperformed Bitcoin this year, up 13%, but still outperformed compared to most other crypto assets.
For example, our Crypto Industry Market Index (CSMI) - which measures gains across the asset class - is down about 1% this year. In fact, excluding Ethereum, the Smart Contract Platform Crypto Industry Index is down about 11%, so it significantly outperforms other assets in its market segment.
Among all assets within our crypto industry framework, Ethereum’s year-to-date returns rank around the 70-75th percentile. So while Ethereum is up less than Bitcoin, it’s still doing well for the year compared to its crypto industry and the broader CSMI.
Focus on smart contract platform
Unlike Bitcoin, which dominates the currency crypto industry, Ethereum faces stiff competition among smart contract platforms.
Several alternative smart contract platforms have gained a lot of attention this year, including Solana, Toncoin, Tron, and Near, as well as the emerging Sui. These assets are all competing for fee revenue, and the superior user experience offered by some alternative smart contract platforms could lead to a decline in Ethereum Layer 1 market share.
At the same time, Ethereum has several competitive advantages in the smart contract platform crypto industry that solidify its position (Figure 3).
Most importantly, it remains the leader in the category, with the most applications, the most developers, the highest 30-day fee revenue, and the highest value locked in smart contracts. When including the largest Ethereum Layer 2 network, it ranks second behind Solana in terms of daily active users.
As public blockchain technology continues to evolve, Grayscale Research expects the entire smart contract platform crypto industry to experience growth in terms of users, transactions, and fees, which is likely to benefit all assets in the category to some extent.
Since Ethereum is the category leader, it is difficult to imagine a period of sustained growth in the smart contract platform segment that would not benefit Ethereum, in part due to its pre-existing network effects.
Because of this, we believe Ethereum remains a compelling asset in the smart contract platform crypto industry, despite the significant competition it faces.
Additionally, Ethereum benefits from certain specific features that may fend off competitors for some time. These features include high network reliability (limited downtime), high economic security, high degree of decentralization, and a clearer regulatory status in the United States.
There is also some encouraging adoption within the Ethereum ecosystem, including tokenization, prediction markets, and developments by companies like Sony. For these reasons, Grayscale Research continues to believe that Ethereum has a very compelling investment thesis.
Grayscale Research Top 20 Assets
Each quarter, the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process of the FTSE/Grayscale Crypto Industry Series Index. As part of this process, Grayscale Research will publish a list of the top 20 assets in the crypto industry sector.
The top 20 represent a diverse group of assets that we view as having high potential (Figure 4).
Our methodology takes into account a variety of factors, including network growth/adoption, upcoming catalysts, fundamental sustainability, token valuation, token supply inflation, and potential tail risks.
This quarter, we added six new assets to the top 20:
Sui: A high-performance layer-1 smart contract blockchain offering innovative applications (see Building Block: Sui for more details).
Bittensor: A platform that facilitates the development of open, global AI systems (see Building Block: Bittensor for more details).
Optimism: An Ethereum scaling solution based on optimistic rollups (a scaling solution).
Helium: A decentralized wireless network running on Solana, a leader in decentralized physical infrastructure (DePin).
Celo: A mobile-first blockchain project transitioning to the Ethereum layer 2 network, focusing on stablecoins and payments.
UMA Protocol: An optimistic oracle serving Polymarket, a leading blockchain prediction market (among other protocols).
High Potential Crypto Industry Assets in Q4 2024
The newly included assets reflect several crypto market themes Grayscale Research focuses on. Sui and Optimism are both considered examples of high-performance infrastructure. Sui is a third-generation blockchain developed by a team of former Meta engineers. Sui received a network upgrade two months ago that increased its transaction speeds by 80%, surpassing Solana, which has led to a recent increase in adoption on the network.
Optimism is an Ethereum second layer that is helping to scale the Ethereum network and has developed a framework for building scaling solutions called Superchain, which is being used by Coinbase’s second layer BASE and Sam Altman The second layer built using Worldcoin.
Both Celo and UMA benefit from unique adoption trends: stablecoin usage and prediction markets. Celo is a blockchain focused on stablecoins and payments in developing countries, and has gained traction in Africa through the Opera browser’s MiniPay app.
Celo, which recently surpassed Tron as the blockchain with the highest stablecoin usage by daily addresses, is currently migrating from a standalone blockchain to Ethereum Layer 2, using Optimism’s superchain framework. UMA is an oracle network for Polymarket, a breakthrough application in the cryptocurrency election year.
UMA records every Polymarket event contract outcome on-chain and facilitates voting on Polymarket outcome disputes, ensuring they are resolved without centralized, arbitrary or biased interference.
The addition of Helium reflects our preference for industry leaders and projects with sustainable revenue.
Helium is a leader in the DePIN (Decentralized Physical Infrastructure Network) category, leveraging a decentralized model to efficiently allocate wireless network coverage and connectivity resources and reward participants for maintaining infrastructure.
Helium has scaled to over 1 million hotspots and 100,000 mobile users, generating over $2 million in network revenue to date.
Finally, while we have been focusing on the decentralized AI topic for some time, Bittensor is only now being included in our crypto industry framework, thanks to improved market structure – specifically including more available pricing sources and higher liquidity. sex.
Bittensor has become a major player at the intersection of crypto and AI, gaining attention as it attempts to leverage economic incentives to create a global decentralized AI innovation platform.
This quarter we have eliminated the following projects from the top 20: Render, Mantle, ThorChain, Pendle, Illuvium, and Raydium. Grayscale Research continues to value these projects and they remain an important part of the crypto ecosystem.
However, we believe the revised top 20 list is likely to provide more attractive risk-adjusted returns next quarter.
Investing in the crypto asset class involves risks, some of which are unique, including smart contract vulnerabilities and regulatory uncertainty. Additionally, all assets in our top 20 are highly volatile, may be considered high risk, and are not suitable for all investors.
Finally, broader macroeconomic and financial market developments may impact crypto asset valuations, and the U.S. elections in November are viewed as a significant risk event for crypto markets.
Former President Trump has made clear his support for the digital asset industry, while Vice President Harris Harris recently said that her administration “will encourage innovative technologies like AI and digital assets while protecting our consumers and investors.”
Given the risks faced by this asset class, any investment in digital assets should be evaluated within the context of an investment portfolio and taking into account the investor’s financial objectives.
This article is reproduced in cooperation with: Shenchao
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