Donovan Choy

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/0xresearch" target="_blank" rel="noreferrer noopener">subscribe</a>.



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Since its genesis, crypto has been a wildly speculative market where excellence in storytelling commands a price premium.



Crypto’s average daily volatility is several times higher than that of traditional assets like gold or equities.



Storytelling pervades all capital markets, but why is it especially pervasive and magnified in crypto?&nbsp;



I can think of two reasons.&nbsp;



The most obvious: its permissionless nature. Anyone can buy a token (no KYC), and anyone can launch a token (see <a href="https://blockworks.co/news/pumpdotfun-token-sale">pump.fun’s success</a>).



A second and more subtle reason: weak legal protections for token holders.



As a professional investor, these are all questions you have to reckon with:



<ul class="wp-block-list">
<li>Will your DAO launch a second token?</li>



<li>Do protocol revenues accrete to private equity, rather than the token?</li>



<li>What do your token’s market-making agreements look like?</li>



<li>Will founders sell their allocations on the private OTC market quietly?</li>
</ul>



All of these questions (with no answers) create uncertainty for investors, which shrinks the available market pie to the most degenerate gamblers.



That, in turn, produces incentives for companies to ignore the laws of profit and loss and rather play the narrative game, or what Theia Research’s Felipe Montealegre termed “<a href="https://youtu.be/99XsVSN_doQ">narrative Stalinism</a>” in a recent talk.



“Whoever decides what the narrative is decides what tokens do well regardless of product-market fit and customers, and decides who gets more capital or less capital to invest. It’s a perverse equilibrium.”



To be sure, storytelling is and has always been <a href="https://blockworks.co/news/blockworks-research-crypto-investing">part of investing</a>.&nbsp;



Investing is fundamentally a social, not natural, science.



And the social sciences will always contain elements of subjectivity — contrary to mainstream economics, where the economy can be neatly modulated on a supply and demand graph with perfect causal explanations.



F. Ross Johnson, the CEO of the great American food and tobacco conglomerate RJR Nabisco in the 1980s, often lamented the poor market valuation of his shares despite its great cash flows.



In the revered business book Barbarians at the Gate, Johnson famously complained:&nbsp;



“It’s plain as the nose on your face that this company is wildly undervalued…we tried to put food and tobacco businesses together, and it hasn’t worked. Diversification is not working. We are sitting on food assets that are worth 25x earnings and we trade at 9x earnings, because we’re still seen as a tobacco company.”



Negative cultural perceptions of tobacco soiled RJR Nabisco’s prospects.



But in the case of crypto, the problem is even more fundamental.



Fundamental property rights suck.



As Montealegre argued, most companies play the game of “narrative Stalinism” because weak token holder protections raise the cost of capital and entry barriers for more risk-averse institutional investors.



From the viewpoint of a fundamentals investor, wishing for an alt season so “number goes up” is pure hopium. You’re better off betting on a token with real revenue flows, but first: Fix the property rights problem.



<h2 class="wp-block-heading">Fundamental companies</h2>



Despite the prevailing problems in crypto capital markets, however, a handful of companies have punched up against their weight. Revenue-generating companies are scarce, but they exist.



Within finance, Jupiter, Raydium and Ethena are all million-dollar-generating businesses. The Hyperliquid perps DEX stands out at the top, with <a href="https://dune.com/queries/4508934/7532291">$1-2 million</a> in daily revenues.



If you prefer businesses not tethered to the “circular” economy of DeFi, there is the onchain private credit Maple Finance, which hit a monthly high in <a href="https://dune.com/maple-finance/maple-finance">$1 million</a> revenue in May. Or Shuffle, a gambling app generating an annualized <a href="https://x.com/bidclubio/status/1927324325884944639?s=19">$100 million +</a> in “net gaming revenue.”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcwWGMa9q_a0nGA7I67wWWafRX6tAxpuunLV-ERhC5sTBEx8r87SfT9o5WoFoS7CUDJaOWQRQZzag2m90vsUeeAE5godw5uImT7zCpanfVf5cfON2u1aDeyS206702R8tCRPgPgtQ?key=DVgGkajGsjjCdTe9gXd0JA" alt=""/></figure>



Even the nascent DePIN sector has a few breakouts of its own, namely the <a href="https://blockworks.co/news/depin-grass-reshaping-ai-data-layer">data-scraping Grass</a> (allegedly generating <a href="https://www.bidclub.io/posts/cmbhf46080000eu6u0azpimfs?invite=cmbhf732f0003eu6uwfmf7158">eight figure annualized revenues</a>) and the real-time kinematic network Geodnet, making sub $2-3 million in <a href="https://app.blockworksresearch.com/research/geodnet-enabling-ubiquitous-autonomy">annual recurring revenues</a> (ARR). 



Debate around the right ways to value tokens is also notably louder, as seen in recent <a href="https://blockworks.co/news/valuing-blockchains-rev-debate">talk</a> around real economic value (REV). This suggests a growing class of investors moving away from speculation, and toward more rigorous approaches to valuations.



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0xResearch Newsletter

Crypto needs to fix token holder protections

The following is part two of a multi-part series on the state of crypto liquid markets based on several conversations with liquid funds.



To read full editions of the the 0xResearch newsletter, <a href="https://blockworks.co/newsletter/0xresearch" target="_blank" rel="noreferrer noopener">subscribe</a>.



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Yesterday’s <a href="https://blockworks.co/news/crypto-liquid-funds-bitcoin-target-this-cycle">0xResearch coverage</a> looked at how the institutionalization of bitcoin and an altcoin supply glut has made it harder to invest in any crypto asset that isn’t bitcoin.



What are liquid funds doing about it? How are they adapting?



Of the eight liquid funds I spoke to, seven mentioned the importance of “fundamentals.”



“Crypto can only grow if it attracts institutional capital, and institutions care most about fundamentals. This is still limited in pockets but is improving within crypto in meaningful ways,” Pantera general partner Cosmo Jiang told me.



Fundamental investing is a lot like painting a mosaic — what is sometimes called &#8220;mosaic investing&#8221; in traditional equities, he said.&nbsp;



“Fundamental investors are building a mosaic of all the data points that exist today — both qualitative and quantitative — to predict the earnings power of this business in the future. What matters is not today&#8217;s metrics, but the cashflow potential of a business three to five years from now.”



What these metrics are, and how much they matter, depends largely on the context of the token’s business.



For instance, ParaFi Capital founder Ben Forman thinks valuable metrics for L1/L2 blockchains are “the total stablecoin and real-world asset supply issued on the chain” and “the velocity that those tokens are circulating.”



&#8220;Vanity metrics like TVL, which are often showcased by L1s but often involve wrapping of their native token, will be meaningfully less significant in the future,&#8221; Forman said.



While professional investors and data wizards still can’t agree on which metrics matter most, there is at least a common belief that narratives are no longer all that matters.



“In 2021, the majority of capital being deployed was not being done so through a fundamental lens,” Theia Fund’s Noah Goldberg argued in a previous <a href="https://x.com/Blockworks_/status/1897077974870245779">X space</a> with 0xResearch. “There was a lot of momentum trading, and retail capital that isn’t price-sensitive…Whereas today, I would say that a lot of capital in liquid markets is concentrated in the hands of funds,” he said.



One investor I spoke to pointed to how tokens with strong fundamental metrics tend to suffer less of a drawdown in a market crash.



The focus on fundamental investing also forces crypto to confront the industry’s most sacred narrative: the Bitcoin halving and four-year cycle.



Some, like Defiance’s Arthur Cheong, believe the four-year cycle of crypto has “officially ended.”



“As the marginal impact to supply of each successive halving event decreases, it will have less impact on the price going forward,” Cheong wrote in an investor letter.



Other funds dismissed the halving as irrelevant, since their mandate involved holding liquid tokens over time horizons longer than four years.



Another fund called the four-year cycle a “meme,” pointing to interest rate cycles as the real risk-on and -off toggle.



Pantera’s Cosmo Jiang <a href="https://panteracapital.com/blockchain-letter/looking-past-tariff-volatility/">saw</a> bitcoin’s historical bull rallies as simply having coincided with global liquidity cycles, like the Eurozone debt crisis in 2012, Brexit in 2016 and Covid in 2020.



In the third and final part of this series, we’ll finally dive into some of the crypto sectors that liquid funds are looking at.



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Crypto liquid funds are turning to fundamentals to navigate a sea of altcoins

Katherine Ross

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire" target="_blank" rel="noreferrer noopener">subscribe</a>.



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In the past few months, we’ve talked about the <a href="https://blockworks.co/news/crypto-fundamentals-metrics-to-watch">rise of fundamentals in crypto</a>.&nbsp;



I take a similar stance to Arca CIO Jeff Dorman when looking at projects: I’m not expecting them to start producing revenue tomorrow, but I’m very aware that projects will need some sort of vision about how they plan to make money. VC raises can truly only get them so far.&nbsp;



But Dorman, in this <a href="https://blockworks.co/podcast/empire/0b22230a-2840-11f0-bf59-bb1feb638e99">week’s episode of the Empire podcast,</a> made an interesting point. Some projects can win in the social value category without necessarily relying on other fundamentals.&nbsp;



“You&#8217;ve got financial value, which is cash flows. You&#8217;ve got utility value, which is some form of usefulness. And then you have social value. And social value is real. It&#8217;s much harder to define. But you can&#8217;t dismiss it,” Dorman explained. He clarified that he’s not just thinking about memecoins or memestocks, but projects that have really catered to and built up social value.



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="The Ultimate Coinbase Debate: Can It Survive? | Jeff Dorman" width="1024" height="576" src="https://www.youtube.com/embed/1dWhiGn4HkQ?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>
</div></figure>



If you’re searching for a winner in this category, it may be Ripple. XRP, at a market cap of $126 billion, is arguably overvalued.&nbsp;



“ But that doesn’t [mean that] because there is no financial value, there is no utility value. It&#8217;s a hundred percent just social value,” Dorman explained. The “ social value of being one of the oldest cryptocurrencies and having this massive following could one day lead to something that does have financial value.”



Dorman compared it to a call option, referring to the contract between a buyer and seller to purchase a stock at a certain price within a set period.&nbsp;



To its credit, Ripple is eyeing ways to boost its own financial profile. Ripple <a href="https://blockworks.co/news/crypto-tradfi-intersections-ripple-blackrock">acquired Hidden Road,</a> giving it access to a new business with the added bonus of a US broker-dealer license.&nbsp;



And, if we’re to believe a <a href="https://www.bloomberg.com/news/articles/2025-04-30/ripple-is-said-to-have-offered-to-buy-stablecoin-rival-circle">report from Bloomberg</a> last week, Ripple also attempted to approach Circle with a hefty bid between $4 and $5 billion. The bid, at this point, is pretty on par with what Circle itself is eyeing upon public debut, but it’s too early to say whether or not it <a href="https://blockworks.co/news/circles-valuation-could-top-5b-post-roadshow">can debut at that valuation.&nbsp;</a>



All of this is to say that Ripple is clearly trying to take advantage of its dominance and expand its reach, which has the added potential of boosting its fundamental value.&nbsp;



So fundamentals aren’t key to success yet, but I also wonder if any other project could copy what Ripple’s done at this stage. It seems to be in a league of its own.



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Empire Newsletter

How Ripple built up ‘social value’: Arca CIO

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire" target="_blank" rel="noreferrer noopener">subscribe</a>.



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The week between the Liberation Day announcement and the 90-day pause gave a good indication of where folks are at when it comes to huge news events that have potential impacts on crypto.



Everyone approaches sudden downturns differently. Some use it as a buy-the-dip moment, some hunker down and prepare for the worst, and others adopt a wait-and-see mindset that allows them to think an action through before an immediate reaction.&nbsp;



SKALE’s Jack O’Holleran would probably say he’s in the third camp, especially as an executive in the industry.



“If you&#8217;re working in the crypto space, you&#8217;re making decisions that are short term, that impact days and weeks, but you also have to make decisions that impact months and quarters, and so you have to be planning ahead,” he told me.



“And it frankly, makes things incredibly challenging, knowing that there are all these other variables outside of your control that you can&#8217;t accurately predict. You have to build volatility and variability into your plan.”



I asked O’Holleran what he thought about fundamentals in crypto, and if we’ve really started to see that shift play out as Blockworks Research’s <a href="https://blockworks.co/news/crypto-fundamentals-metrics-to-watch">Ryan Connor believes</a>.



O’Holleran thinks we’re still on the path toward fundamentals. I know we’ve heard the 90s comparisons a couple of times here on Empire. But O’Holleran pointed out that at the beginning of the dot-com era (before it was a bubble), speculation swirled around the tech, even when the products weren’t live quite yet. Crypto’s operating similarly, he noted.&nbsp;



In crypto, the evolution toward fundamentals will shift into focusing more on project metrics. The industry is in what O’Holleran referred to as “loss leader” mode.&nbsp;



“People are less concerned about economic values than they are about TVL and trading volume,” he said.&nbsp;



“[In] March there was a strong indicator of success at the infrastructure level. Because I think there&#8217;s a general belief that as incumbents and new players gain market share and build moats, they&#8217;re going to be able to then increase their profitability, or token value capture.”



And one of the key things we’re building up right now is just how we value different segments in crypto. O’Holleran pointed out that folks are still gauging how something like DePIN or layer-2 projects should be weighted in their categories.&nbsp;



All of these things reaffirm what may be a bit obvious to us: The industry is really at a maturity inflection point. Prepare for some growing pains, but figuring out metrics to value a project will, in the long run, be a net positive for crypto.&nbsp;



Bring on the fundamentals.



This interview has been edited and condensed for clarity.



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<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



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How crypto’s evolving with fundamentals 

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire" target="_blank" rel="noreferrer noopener">subscribe</a>.



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If you thought we were done talking about the Digital Asset Summit, think again!



This morning, we got an <a href="https://blockworks.co/podcast/empire/56ee48aa-08eb-11f0-9940-5ff7c303bbbf">extra episode of the Empire podcast</a>, which is a conversation between Jason Yanowitz and Eric Peters of Coinbase Asset Management and CEO of One River.



Yanowitz picked Peters’ brain about the four-year cycle (he doesn’t think there is one on a forward-looking basis) and, of course, fundamentals.&nbsp;



Here’s a tough pill to swallow: Despite all our hopes and dreams for a more fundamental-based crypto, Peters isn’t so sold.&nbsp;



“I suspect it’s going to be narrative-driven for a while. There are just a lot of people that need to buy these assets, and — unless they&#8217;re just gonna dismiss them outright — they need to get a position on [them]…This next wave is gonna be driven by investment committees, at least from an institutional perspective,” he said. 



“A lot of things are starting to be built on Ethereum, and Wall Street seems to be more engaged. I keep hearing more about tokenization, and ‘Oh my God, we actually own nothing.&#8217; Nothing is the wrong number.…That doesn&#8217;t sound super fundamental. I mean, at a very high-level macro argument, I think it is fundamental,” he added, but it’s not like the TradFi firms are “building a discounted cash flow for Raydium,” to Yanowitz’s point. 



None of this is to discount fundamentals, which — as <a href="https://blockworks.co/news/crypto-fundamentals-metrics-to-watch">we’ve talked about</a> — will still become more important as the industry matures. 



But perhaps we have to pump the brakes on getting too excited about shifting away from narratives just yet.



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<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



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Digital Asset Summit

Crypto will remain ‘narrative-driven’ for a while: Eric Peters

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/research">subscribe</a>.



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The permissionless nature of crypto means anyone with a computer and internet connection can have a bag. That makes it really hard to value tokens.



Price-to-sales multiples of L1s like Cardano or Ripple trade at absurd four to five figure ranges, far above actual value-generating L1s like Solana (32x) and Ethereum (227x).



Then there are tokens like OM (who?) that are clocking in the highest price gains of 47.6% since the industry’s biggest liquidation earlier this month.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The best advice I can give crypto founders right now is to find the <a href="https://twitter.com/search?q=%24OM&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$OM</a> market maker and hire them. <a href="https://t.co/0NuazFN4N7">pic.twitter.com/0NuazFN4N7</a>&mdash; Lai Yuen (Former .eth) (@0xlaiyuen) <a href="https://twitter.com/0xlaiyuen/status/1888823059584602544?ref_src=twsrc%5Etfw">February 10, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



No rational explanation exists. It’s all narrative and “speculative premiums.”



But is that going to stop investors from trying to formally value tokens? No, because there is a lot of money to be made from unearthing the gems.&nbsp;



In the short history of this industry, investors have <a href="https://youtu.be/aCHY9iPS8sI">tried to value</a> L1s with a variety of now-abandoned tools like the stock-to-flow model, total-value-locked to market cap ratios or proof-of-stake staking cash flow yields.



The latest shift in investor sentiment around token valuations is doubling down on an emphasis on the importance of fundamentals.



Maelstrom fund <a href="https://x.com/MaelstromFund/status/1889706122107338761">points</a> to Vertex perps DEX, arguing that markets are “underestimating” the DEX’s growth and that it “should” be trading at a 200% to 300% greater valuation in line with its peers.



1kxnetwork fund’s recently <a href="https://x.com/pet3rpan_/status/1887140527310864481">published</a> Ronin chain thesis points to the gaming chain’s deflationary burn of SLP, plus rising daily active users and breakout revenue-generating game Pixels ($20.7 million in 2024).



Applications like Raydium, Hyperliquid, Metaplex, GEODNET, and Jupiter are all trading at reasonably “rational” P/S ratios that are based on consistent cash flows and more measurable growth potential.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdXdgcWvGoqtpq_ESTlfJ9JukSDa8GGFbvuPles2tYtLJlUgD_lU5BXqQ7qTOsoEK1zrNsE51XT16BW8vVVmHlV5yCo2UMX3Y_88DSo9Sd4DGc5Bb3GJcyOc5JsV68WB6BGnEk-Qg?key=ttbwXyG5YLiXMxIfjc4w1cbH" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://x.com/artemis/status/1890162713244102993">Artemis</a></figcaption></figure>



Many of these projects are also engaging in huge token buybacks, often perceived as a “fundamentals-driven” strategy to improve the attractiveness of price multiples.



Jupiter’s token <a href="https://x.com/JupiterExchange/status/1890089764218630253">buyback</a> program may quite possibly be the largest (in USD terms) with a commitment of 50% protocol fees. That comes up to a buyback of ~9.4% of JUP’s total circulating supply, based on this rough <a href="https://x.com/alpha_pls/status/1883496465160458659">estimate</a>.



Supporting the point that “fundamentals are back” is also the ugly reality of declining L1/L2 valuations.



The fabled “Layer-1 premium” is slowly evaporating. L1s in the previous cycle like Starknet raised at eye-popping valuations of $8 billion, while newer L1s command less than half of those valuations (Berachain $420 million, Story Protocol $2.25 billion, Celestia $3.5 billion).



The <a href="https://x.com/Febers4/status/1889671466041614568">down-only price action</a> of most L1s/L2s in the last 12 months will likely grind future valuation numbers down even further.



Application revenues are also beginning to outpace the revenues of the underlying L1 and L2 protocols, Blockworks’ <a href="https://x.com/smyyguy/status/1890088127617987066">Dan Smith</a> points out.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXckuTfvYMVthDMuaxyo0WxSxozxN-4YZwPobsaPPaUmQcT4K2xIruQAn44yJA8BoUb5E6Zfje61ASi_i5aQkpFxQgaNovSof5RToq6Ni6pKsbnVvOBvhcSZ84MaeImh33tyn1u0?key=ttbwXyG5YLiXMxIfjc4w1cbH" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://app.blockworksresearch.com/analytics/l1">Blockworks Research</a></figcaption></figure>



This all hinges on the growing disdain of the industry’s <a href="https://blockworks.co/news/crypto-infrastructure-bloat">infrastructure bloat</a>. The fat protocol thesis is no longer, now is the era of <a href="https://x.com/jon_charb/status/1890210333714960787?s=19">the fat app thesis</a>.



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Crypto fundamentals are back

This is a segment from the Empire newsletter. To read full editions, <a href="https://blockworks.co/newsletter/empire">subscribe</a>.



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Blockworks’ head of research, Ryan Connor, thinks that we’re at a “crossroads” with fundamentals in crypto.&nbsp;



“It&#8217;s because the marginal investor coming into crypto as a result of legalizing crypto in the United States is going to be a traditional financial professional, not a degen,” he told me.



It can be boiled down to either the amount of market participants or those who control the capital. Both of these lead to the same outcome: Folks who want to see fundamental value in tokens.



“A lot of people in crypto still believe the primary driver of token price is ‘vibes.’ There’s ample evidence over the past, let’s say 18 months, that that’s increasingly not true,” he explained. That doesn’t mean that vibe trading isn’t a thing — and probably will still linger for a while yet — but those will remain in smaller pockets of the market, like memecoins.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">If tokens don’t trade on fundamentals then why is crypto correlated to Nasdaq&mdash; Ryan Connor | BWR 🟪 (@_ryanrconnor) <a href="https://twitter.com/_ryanrconnor/status/1886476222005202973?ref_src=twsrc%5Etfw">February 3, 2025</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



When you have scenarios of a “silly” token soaring and then crashing, it opens the door for fundamentals to play a bigger part as crypto matures.&nbsp;



“Most token projects are early-stage, and because there&#8217;s some opacity around governance models, we tend to just look at the top line first. As a general rule in TradFi, the earlier stage the project, the more you care about the top-line fundamentals as opposed to the bottom-line fundamentals. If you’re a high-growth tech company, you’re looking at sales growth, you’re looking at the [average revenue per user], and rate of change on those metrics,” Connor said.



Other fundamentals to look at, depending on the project, would be earnings, cash flows and dividend yields. For the most part, the TradFi metrics carried over will reflect what we see in high-growth tech firms.&nbsp;



Right now, though, revenue is “probably the most important thing today,” and then you can pick and choose other metrics to apply depending on the token.&nbsp;



One thing’s for sure: There’ll always be a place for vibes in crypto, but adding in metrics to monitor the success of a project only levels crypto up.



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Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forward-guidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/supply-shock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
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Crypto’s at a ‘crossroads’ with fundamentals: Blockworks Research

Sam Martin

Bitcoin

Ethereum and Bitcoin Price Action, Fundamentals Diverge: Markets Wrap

<div id="highlights-block_60c9fc7f1690b" class="highlights">
 <ul>
 <li>Macro backdrop, on-chain fundamentals and regulatory outlook are making bitcoin an easy buy and hold</li>
 <li>It&#8217;s important to remember the environment we are in and not forget about the digital pet rock: bitcoin </li>
 </ul>
 
</div>



<h3 class="wp-block-heading">Markets Wrap Highlights</h3>



<ul class="wp-block-list"><li>The macro backdrop is very favorable for bitcoin. </li><li>On-chain fundamentals look great for Bitcoin. </li><li>Regulators seem less concerned with bitcoin and more worried about stablecoins and other tokens that are function in similar ways to securities. </li></ul>



Latest in Macro:



<ul class="wp-block-list"><li>S&amp;P 500: 4,391, -.19%</li><li>NASDAQ: 14,579, -.51%</li><li>Gold: $1,757, +.05%</li><li>WTI Crude Oil: $79.52, +1.56%</li><li>10-Year Treasury: 1.61%, +.041%</li></ul>



Latest in Crypto:



<ul class="wp-block-list"><li>BTC: $54,378, +0.27%</li><li>ETH: $3,599, -.73%</li><li>ETH/BTC: .0662, -.69%</li><li>BTC.D: 43.88%, +.18%</li><li>DPI (DeFi Pulse Index): $341.62, +.66%</li></ul>



<h3 class="wp-block-heading">Macro Backdrop </h3>



While other protocols such as Ethereum offer incredible innovation and interesting applications, it is important to remember the environment we are in and not forget about the digital pet rock: bitcoin. 



 &#8220;There is no ability for the Fed to tighten. They can&#8217;t. And the reason they can&#8217;t is because if you look at US treasury spending plus US entitlement payments, it&#8217;s over 100% of tax receipts. So the US&#8217; real interest expense is still more than 100% of tax receipts with tax receipts at all time highs and with bubbles in every freaking market. So if they tighten, they&#8217;re going to drive tax receipts lower, and then unless the Fed prints the difference the US will default on entitlements or treasuries.&#8221; &#8211; Luke Gromen, founder and president of <a href="https://fftt-llc.com" target="_blank" rel="noreferrer noopener">FFTT</a>



The following chart shows real central bank rates, or the difference between nominal rates and the prevailing inflation rate:



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="728" height="1024" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg" alt="" class="wp-image-9142" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=728 728w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=213 213w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=1091 1091w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=183 183w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=185 185w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=156 156w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=57 57w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/real-rates-728x1024.jpg?w=1284 1284w" sizes="auto, (max-width: 728px) 100vw, 728px" /></figure>



&#8220;The United States, with the global reserve currency, hollowed out its industrial base at a far faster pace than our peers, as we shut down domestic factories and opened them up abroad (to take advantage of cheaper labor).&#8221; &#8211; Lyn Alden, macroeconomist and <a href="https://www.lynalden.com/august-2021-newsletter/" target="_blank" rel="noreferrer noopener">equities strategist.</a> 



One can easily spot the decoupling between productivity and wage growth in the 1970s when President Nixon announced the greenback would no longer be exchangeable for gold, thus giving birth to the petrodollar system. 



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="803" height="471" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png" alt="" class="wp-image-9143" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=803 803w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=445 445w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=373 373w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-3.26.46-PM.png?w=80 80w" sizes="auto, (max-width: 803px) 100vw, 803px" /><figcaption>Source: <a href="https://www.epi.org/productivity-pay-gap/" target="_blank" rel="noreferrer noopener">EPI</a></figcaption></figure>



To summarize, we have increasing inequality within the US due to the lack of wage growth and increasing asset prices, combined with negative yielding debt instruments on a real basis and a whole lot of capital in the system with no where to hide. 



Historically speaking, gold was the place to park your money in these environments. But in a digital era, Bitcoin has become a viable alternative. It&#8217;s worth noting that gold&#8217;s established history and the fact that it sits on central bankers balance sheets are two important factors worth considering. 



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="448" height="550" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg" alt="" class="wp-image-9146" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=448 448w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=244 244w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=209 209w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=213 213w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=178 178w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/btc-v-gold.jpg?w=65 65w" sizes="auto, (max-width: 448px) 100vw, 448px" /><figcaption>Source: <a href="https://medium.com/@samikkurty/fiat-gold-and-bitcoin-comparison-e878fa2292bc" target="_blank" rel="noreferrer noopener">Medium</a></figcaption></figure></div>



<h3 class="wp-block-heading">Bitcoin Fundamentals</h3>



Per JPMorgan, there are tentative signs that the previous shift away from gold into bitcoin seen during most of Q4 2020 and the beginning of 2021 has begun to re-emerge in recent weeks.



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="500" height="398" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg" alt="" class="wp-image-9147" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=500 500w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=323 323w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=328 328w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=275 275w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/cumulative-flows.jpg?w=80 80w" sizes="auto, (max-width: 500px) 100vw, 500px" /></figure></div>



Long term holders (LTHs), or entities who have held onto their coins without moving them for 155 days or more, continue to accumulate. Over two million coins have aged into LTHs since the May correction.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg" alt="" class="wp-image-9148" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/LTH-supply-1024x576.jpg?w=1800 1800w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /></figure>



With every cycle, there are momentum traders/speculators who hop on board, but there are also a number of people who dive deep into bitcoin and decide they agree with the philosophical ideas behind its existence, thus creating more lifetime holders who do not plan to sell. This point is best illustrated by the chart below. Bitcoin UTXO (unspent transaction output) age distribution is a fancy way of saying &#8216;the last time bitcoins were moved&#8217;. 



<figure class="wp-block-image size-full"><img loading="lazy" decoding="async" width="1010" height="672" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png" alt="" class="wp-image-9149" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=1010 1010w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/BTC-UTXO-Age-Distribution-Unchained-Capital.png?w=80 80w" sizes="auto, (max-width: 1010px) 100vw, 1010px" /></figure>



We also see the number of bitcoin on exchanges such as Coinbase, Binance, etc., decreasing in a dramatic way since the crash in March of 2020. This indicates that retail investors are buying cold storage wallets and taking custody of their bitcoin. Often times, people who take the time to <a href="https://www.lopp.net/bitcoin-information/security.html" target="_blank" rel="noreferrer noopener">learn about self-custody</a> have no intentions of selling their bitcoin. 



<div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="700" height="393" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png" alt="" class="wp-image-9150" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=700 700w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=465 465w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/premium-2021-10-3-btc-exchange-balance.png?w=80 80w" sizes="auto, (max-width: 700px) 100vw, 700px" /><figcaption>Source: Lyn Alden / Glassnode</figcaption></figure></div>



Perpetual funding rates have eased on the highest volume exchanges over the last few days. This indicates that traders aren&#8217;t frantically attempting to take a long position. Emotions do not represent healthy moves, regardless of their direction. 



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="105" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png" alt="" class="wp-image-9153" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-08-at-4.39.13-PM-1024x105.png?w=1437 1437w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Source: https://app.laevitas.ch/dashboard/btc/derivs</figcaption></figure>



Lastly, bitcoin is the only cryptocurrency that has been repeatedly stated as the least of regulators&#8217; concerns. In the past week, we saw Fed chairman Jerome Powell <a href="https://www.bloomberg.com/news/videos/2021-09-30/powell-says-fed-has-no-intention-to-ban-cryptocurrencies-video" target="_blank" rel="noreferrer noopener">clarify</a> that he does not want to ban the use of digital assets but that regulation on stablecoins is necessary. We have also seen Gary Gensler <a href="https://www.businessinsider.com/gary-gensler-sec-chair-crypto-cop-blockchain-regulation-2021-8" target="_blank" rel="noreferrer noopener">classify</a> bitcoin as a commodity. When compared to other digital assets, bitcoin undoubtedly carries the least amount of regulatory risk. 



That&#8217;s all for this week, my friends. Have a great weekend! 



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