David Canellis

Small cap summer may end up being this bull market’s final form.



Think of it like the internal <a href="https://earthobservatory.nasa.gov/images/87519/waves-above-and-below-the-water">waves</a> churning thousands of feet deep beneath the ocean — ones that finally summon a real altcoin season.



“Small cap” is a stock market term. It’s possible to sort the crypto market into different categories based on established equities <a href="https://www.finra.org/investors/insights/market-cap">definitions</a>.



<ul class="wp-block-list">
<li>Mega-caps are worth $200 billion or more</li>



<li>Large-caps between $10 billion and $200 billion</li>



<li>Mid-caps between $2 billion and $10 billion</li>



<li>Small-caps between $250 million and $2 billion</li>
</ul>



Riffing on those benchmarks, mostly to account for crypto’s volatility, tokens can be placed in those buckets if they spent more than 50% of their trading days over the past three years above their respective benchmarks.



Stacks, for instance, only traded in the mid-cap range for 31% of its trading days since August 2021, so it goes alongside the other small caps.



There are currently over 50 mega-cap <a href="https://companiesmarketcap.com/">stocks</a> but only two cryptocurrencies: bitcoin and ether. Crypto also only has five large-cap assets — bnb, solana, xrp, dogecoin and cardano — and around two dozen mid-caps including polygon, filecoin, cronos, monero and chainlink.



143 tokens otherwise represent small-caps. Coins such as pyth, dydx, worldcoin, blur, ondo, helium, celestia and bittensor.&nbsp;



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<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/19072005/embed#?secret=wtIXBJGCem" data-secret="wtIXBJGCem" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Small cap summer has a sizable army in waiting. Click the dots in the middle to zoom into a particular category.</figcaption></figure>



Small-caps all spent most of the past three years (or however long they’ve been on the market) trading at a capitalization between $250 million and $2 billion. They may have spent weeks or even months above the $2 billion mark, but not long enough to transcend categories.



But when does small cap summer start? Just like how there’s no real definition of what makes an altcoin season (see previous attempts <a href="https://blockworks.co/news/empire-newsletter-memecoin-launches">here</a> and <a href="https://empire-31ed59.beehiiv.com/p/monday-mood?utm_source=empire-31ed59.beehiiv.com&amp;utm_medium=newsletter&amp;utm_campaign=monday-mood">here</a>), what makes a small cap summer has never been formally decided.



One could say that small cap summer starts when, as a cohort, small cap tokens are altogether worth more than mid-caps.



That unfortunately hasn’t happened since April 2022.&nbsp;



But we are closer now than we were this time last year — small caps are altogether worth $93.6 billion to $115.2 billion for midcaps, a difference of only 19% compared to over 30% in August 2023.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/19071812/embed#?secret=Y2shuoUjH4" data-secret="Y2shuoUjH4" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Mid-caps and small-caps are losing ground against large-caps over the year to date.</figcaption></figure>



There is some hope. An overwhelming majority of small caps may have lost significant value over the past three months — but six in particular are keeping the dream alive.



Memecoins mog, brett and notcoin have all outperformed bitcoin and ether since May, and so have zcash, helium and ens.&nbsp;



In the memecoins’ case, they’ve all done multiples while bitcoin and ether are slightly underwater across the same period.



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<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/19072544/embed#?secret=slh5X5SK1b" data-secret="slh5X5SK1b" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">All small-cap summer needs is another batch of tokens to rally this hard.</figcaption></figure>



That only six out of 143 have shown real strength amid a bitcoin correction may however sound grim (it’s a strike rate of about 4%).&nbsp;



But if you’re looking for green shoots to mark the start of small cap summer, these could be it.



A modified version of this article first appeared in the daily Empire newsletter. Subscribe <a href="https://blockworks.co/newsletter/empire">here</a> so you don’t miss tomorrow’s edition.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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These 6 cryptocurrencies are hinting at a small cap summer

This is Cheatsheet, a primer on what’s happening in crypto today.



Bitcoin is still taking a breather, causing the rest of the market to twiddle its thumbs.



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) and ether (<a href="https://blockworks.co/price/eth">ETH</a>) were down around 3% a piece as of 7 am ET, with the former hovering around $64,700 — 12% below the all-time high set earlier this month — and the latter at $3,430. ETH is still 30% below its own price record from 2021.



Most top-100 cryptocurrencies are red over the past day, with only about a dozen or so ahead by 2%.&nbsp;



Fantom (<a href="https://blockworks.co/price/ftm">FTM</a>), the native token for the hyped layer-1 from the previous cycle, is the best performer with 11%, followed by internet computer (<a href="https://blockworks.co/price/icp">ICP</a>) and Axie Infinity-adjacent ronin (<a href="https://blockworks.co/price/ron">RON</a>), which have added 8.9% and 6.5%, respectively.



More buzzy cryptocurrencies have fared the worst. Decentralized computing token bittensor (<a href="https://blockworks.co/price/tao">TAO</a>), is down 9.4% while memecoin floki (<a href="https://blockworks.co/price/floki">FLOKI</a>), has lost 8.4%. Solana (<a href="https://blockworks.co/price/sol">SOL</a>) and DEX asset jupiter (<a href="https://blockworks.co/price/jup">JUP</a>) are close behind, having tumbled 8%.



Solana dog coins bonk (<a href="https://blockworks.co/price/bonk">BONK</a>) and dogwifhat (<a href="https://blockworks.co/price/wif">WIF</a>) have been clobbered, each shedding close to a quarter of their value. Worldcoin (<a href="https://blockworks.co/price/wld">WLD</a>) has meanwhile tanked nearly 16%.



<h2 class="wp-block-heading">On-chain mail</h2>



Ethereum has long had a target on its back. Now, after years of fending off “Ethereum killers,” it’s facing increasingly stiff competition.



<ul class="wp-block-list">
<li>Solana was the top blockchain for DEX <a href="https://defillama.com/dexs/chains">volumes</a> over the past week: $21.55 billion to Ethereum’s $19.37 billion (largely attributable to memecoin mania).</li>



<li>Ethereum still beats Solana after counting layer-2 DEX volumes on Arbitrium, Base and Optimism, altogether worth more than $9.3 billion.&nbsp;</li>



<li>Solana has seen more than double the number of unique active signers than Ethereum over the past week, peaking at over 2 million on Mar. 17 to Ethereum’s 456,000, per <a href="https://www.blockworksresearch.com/#features">Blockworks Research</a> data</li>
</ul>



It’s possible that Solana’s cheapness relative to Ethereum has brought on the recent explosion in activity. Cheaper transactions make it far more attractive to trade repeatedly on-chain, which can convert to higher volumes.



On Ethereum mainnet, the median transaction fee has been anywhere from $13.45 to $5 throughout March. Solana’s median was about $0.004 this week, even after exploding 400% (Solana’s average fee has meanwhile hit $0.06, up 1,100% from half a cent at the start of the month).



Ethereum users seeking transactions as cheap as Solana can now easily find them, however. The recent Dencun hard fork solidified Ethereum’s utility as a fairer settlement layer for its many layer-2 networks. Arbitrum and Optimism transactions currently cost less than $0.10.



Read more: <a href="https://blockworks.co/news/ethereum-dencun-upgrade-mainnet">The biggest Ethereum upgrade ever goes live</a>



<ul class="wp-block-list">
<li>Solana is closer than ever to flipping ether — its market cap is the equivalent of 19% of ETH, up from less than 4% this time last year.</li>



<li>SOL eclipsing the third most valuable native crypto, BNB, for good seems far more imminent. SOL has even briefly flipped BNB multiple times over the past month and a half.</li>



<li>ETH is however now much further away from flipping bitcoin, after losing ground since September 2022.</li>
</ul>



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/17261075/embed#?secret=vgTKhc6Otp" data-secret="vgTKhc6Otp" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Ethereum&#8217;s odds at flipping bitcoin are shrinking</figcaption></figure>



<h2 class="wp-block-heading">Crypto business</h2>



Bitcoin mining stocks are staging recoveries after a brutal few weeks being dragged by concerns around profitability after the next halving.



<ul class="wp-block-list">
<li>About half of the two dozen mining stocks outperformed the S&amp;P 500 on Thursday, with Gryphon and Cipher leading the pack with 9.7% and 6.15%.</li>



<li>Ohio-based Griid Infrastructure, which debuted on the Nasdaq in January, is set to open Friday 40% higher after a sudden premarket pump. No direct catalyst is immediately apparent.</li>



<li>Hong Kong’s BIT Mining and Bitmain spinoff Bitdeer were laggards across the day and after-hours sessions, altogether slipping 5.16% and 6.75%.</li>
</ul>



Crypto stocks overall are still struggling compared to broader benchmark indexes, with only five outperforming the 5% gains made by S&amp;P and the tech-heavy Nasdaq 100 over the past month.



MicroStrategy (130%), Coinbase (51%), Cipher Mining (38%), CleanSpark (22.5%) and Bitdeer (10%) are so far crypto’s star performers.



The market has clear concerns about Gryphon, BIT Mining, Bitfarms, Canaan, Hive and Riot, with each losing more than a quarter of their value over the past month. China-headquartered SOS, it turns out, is aptly named, having collapsed an eye-twitching 60%.



Read more: <a href="https://blockworks.co/news/bitcoin-mining-stocks-crypto-rally">Why most bitcoin mining stocks are down amid a persistent crypto rally</a>



<ul class="wp-block-list">
<li>A raft of executives at crypto companies have sold company stock over the past month, according to OpenInsider data compiled by Blockworks.</li>



<li>Led by Coinbase CEO Brian Armstrong and MicroStrategy chairman Michael Saylor, insiders at Coinbase, MicroStrategy, Riot, Stronghold and CleanSpark have altogether offloaded shares worth $480 million since this time in February.&nbsp;</li>



<li>Core Scientific directors, alongside new CEO Adam Sullivan, have otherwise bet on their own company, buying $1.23 million in shares last week for an average price of $3.16. CORZ is up 10% since then.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">On the ground</h2>



<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">PSA: <a href="https://twitter.com/heydotxyz?ref_src=twsrc%5Etfw">@heydotxyz</a> just introduced creator licenses on for collectible social content, giving creators on <a href="https://twitter.com/LensProtocol?ref_src=twsrc%5Etfw">@LensProtocol</a> the ability to set the terms on how social content is monetize and used. With three license types to choose from &#8211; CC0, commercial use, and personal use -… <a href="https://t.co/oRi6lICVjC">pic.twitter.com/oRi6lICVjC</a>&mdash; Christina.lens (@0xChristina) <a href="https://twitter.com/0xChristina/status/1770918911136985476?ref_src=twsrc%5Etfw">March 21, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Read, write, own, license</figcaption></figure>



<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">Pudgy flipped Apes (again) <a href="https://t.co/bXxXkbOMa7">pic.twitter.com/bXxXkbOMa7</a>&mdash; Alex Svanevik 🐧 (@ASvanevik) <a href="https://twitter.com/ASvanevik/status/1771113482072752549?ref_src=twsrc%5Etfw">March 22, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Bored Apes may soon be Boomer Apes</figcaption></figure>



<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">OH (industrial airdrop farmer): “it’s not sybilling if you have kids who you give your ref codes to”&mdash; Tarun Chitra (@tarunchitra) <a href="https://twitter.com/tarunchitra/status/1771038047796437218?ref_src=twsrc%5Etfw">March 22, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">That’s one way to game the Worldcoin orb</figcaption></figure>



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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Cheatsheet: Solana never closer to flipping Ethereum (but still far away)

Finding the next big thing is the secret sauce for many investors, whether it’s startups, stocks, bonds, commodities or crypto.



Obsession with discovering “the next Ethereum” — or even an “Ethereum killer” — then seems only natural.



Ethereum’s smart contracts set the industry standard nearly a decade ago and have since inspired dozens, if not hundreds or even thousands, of rival networks.&nbsp;



Solana is generally considered Ethereum&#8217;s primary competitor right now. Comparing market values shows nothing has really come close to eclipsing Ethereum. Yet.



In fact, BNB Chain (<a href="https://blockworks.co/price/bnb">BNB</a>) and Cardano (<a href="https://blockworks.co/price/ada">ADA</a>) have come the closest over the past three years.&nbsp;



<ul class="wp-block-list">
<li>The market cap of BNB in April 2021 and late 2022 was about 33% of ether’s (<a href="https://blockworks.co/price/eth">ETH</a>).</li>



<li>ADA had up to 25% of ether’s cap during the last bull market.</li>



<li>Solana (<a href="https://blockworks.co/price/sol">SOL</a>) set a new record relative to ether last month with 19%.</li>
</ul>



Read more: <a href="https://blockworks.co/news/ethereum-dominates-solana-charts">It’s a Solanaissance: These 5 charts will cure the Ethereum vibecession</a>



Price ratios — dividing one assets’ price by another and comparing over time — are <a href="https://blockworks.co/news/sec-snafu-causes-bitcoin-ether-divergence">commonly used to gauge</a> the relative strength of cryptocurrencies.



Analyzing price alone is problematic due to inflation and deflation rates of many top cryptocurrencies.



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<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/16461191/embed#?secret=wKZtlFKJNo" data-secret="wKZtlFKJNo" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Solana’s market cap ratio against ether has retraced by a quarter since Christmas, now about 14%</figcaption></figure>



Take <a href="https://blockworks.co/price/atom">ATOM</a>, the native asset for multichain ecosystem Cosmos. Over the past year, ATOM’s circulating supply has swelled by a third and its token price has slipped by 20%, according to data from The Tie.



Meanwhile, ATOM’s market cap has grown 15%. Price alone implies ATOM is struggling, when it could be the market is simply absorbing fresh supply — and then some.



Solana, on the other hand, has almost 17% more circulating supply than this time last year. Its price has quadrupled across that period, while its market cap has nearly quintupled. Comparing only SOL’s price would leave a chunk of the asset’s growth unaccounted for.



Much of Solana’s outsized growth over the past year can be attributed to its gradual recovery since the FTX debacle.



Read more: <a href="https://blockworks.co/news/solana-anatoly-yakovenko-roadmap-future-ftx-collapse">Rebuilding trust: Solana’s roadmap after a challenging year</a>



Disgraced FTX co-founder Sam Bankman-Fried was a <a href="https://blockworks.co/news/sam-bankman-fried-crypto-portfolio">significant investor in Solana</a> and its ecosystem, leading SOL to collapse by up to 65% directly following FTX’s implosion in late 2022. Ether fell less than 30% and completely recovered in about two months.



Market caps are just one metric by which to compare cryptocurrencies and blockchains. Total value locked, unique addresses, on-chain volumes, developer activity, fee revenues and transaction counts are among others. Each has its flaws.



In any case, Ethereum isn’t exactly threatened right now. But going by market cap growth alone, Solana is well on track to become Ethereum’s primary competitor over BNB.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Solana takes break from eating Ethereum’s lunch — for now

Crypto has a terrible track record when it comes to ads. Coinbase clearly isn’t phased.



The most awkward ads of recent memory — Matt Damon’s Super Bowl spot for Crypto.com and FTX’s anti-ad starring Larry David — played up a fear of missing out.



“Fortune favors the brave,” Damon <a href="https://twitter.com/Blockworks_/status/1453687300899155968">said</a>, so you’d better buck up and buy bitcoin before that fortune runs out.&nbsp;



A time-traveling Larry meanwhile missed out on groundbreaking technologies like the wheel, forks and toilets, and now doesn’t get the big fuss about crypto.&nbsp;



Don’t be like Larry, FTX said, invest in digital assets while they’re still the next big thing. FTX went bankrupt one year later under the weight of <a href="https://blockworks.co/news/sbf-guilty-verdict-sentencing">Sam Bankman-Fried’s fraud</a>.



The <a href="https://blockworks.co/news/whos-coughing-up-crypto-winter-dollars-for-super-bowl-ads">ads were unfortunately timed</a>, debuting near bitcoin’s all-time high only for the coin to crash 60% over the next six months. Damon and David were dragged by the media as a result, with the latter even <a href="https://deadline.com/2022/11/tom-brady-giselle-bundchen-ftx-lawsuit-larry-david-steph-curry-crypto-1235174541/">sued</a> for promoting FTX. By the time the FTX scandal hit, the whole notion of crypto Super Bowl ads felt a little embarassing.



It’s no surprise, then, that Coinbase’s latest campaign opts for a bit more substance than its own Super Bowl ad, which featured only a bouncing QR-code that led to a sign-up page and a $15 bitcoin giveaway that <a href="https://www.theverge.com/2022/2/13/22932397/coinbases-qr-code-super-bowl-ad-app-crash">crashed</a> the app due to demand.&nbsp;



The new ad leans more into the philosophical and is conspicuously celebrity-less. A little girl tells us that we’re born into a system — a system with “numbers and papers and lines and waiting.”&nbsp;



You work hard in that system, get good grades, go to college and still take on loads of debt. Starting a family means working two or three jobs, but you still can’t afford rent, let alone buy a house. Not to mention, used cars cost as much as new ones!



“Breaking news — everything is terrible. But does it have to be this way? What if it was different?” Coinbase asks.



<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">⏪️ Accept that it will always be this way. ⏩️ Build something better. <a href="https://twitter.com/hashtag/UpdateTheSystem?src=hash&amp;ref_src=twsrc%5Etfw">#UpdateTheSystem</a> <a href="https://t.co/TT22o2iQke">pic.twitter.com/TT22o2iQke</a>&mdash; Coinbase 🛡️📞 (@coinbase) <a href="https://twitter.com/coinbase/status/1730633199087161813?ref_src=twsrc%5Etfw">December 1, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption class="wp-element-caption">Coinbase wants to #UpdateTheSystem with crypto</figcaption></figure>



Crypto (or more specifically, the crypto you can buy on Coinbase) gives us an out — a way to raze and rebuild a financial system that’s rapidly pricing us all out.&nbsp;



Or, at the very least, crypto might help you afford a used car. “Because you&#8217;re born into a system, doesn&#8217;t mean you have to live with it,” according to the Coinbase ad.



It’s all very “<a href="https://knowyourmeme.com/memes/gamer-joker-gamers-rise-up-we-live-in-a-society">we live in a society</a>” and even a little Marxist. Still, rather than overintellectualize an already very edgy ad, this is a great moment to check in on how the alternative crypto financial system is really doing.



<ul class="wp-block-list">
<li>All of crypto is currently a bit more than half an Apple, or more than 10 BlackRocks.</li>



<li>Ethereum’s annualized revenue is just under $3 billion — about 15% of what the average US <a href="https://www.statista.com/forecasts/409832/casinos-except-casino-hotels-revenue-in-the-us">casino</a> brings in per year.</li>



<li>That’s nearly one-tenth of Visa’s yearly <a href="https://www.macrotrends.net/stocks/charts/V/visa/gross-profit">profit</a> and about one-eighth <a href="https://www.macrotrends.net/stocks/charts/MA/mastercard/net-income#:~:text=Mastercard%20net%20income%20for%20the%20twelve%20months%20ending%20September%2030,a%2035.5%25%20increase%20from%202020.">Mastercard’s</a>.</li>
</ul>



Those metrics are cute, but don’t really capture the spirit of Coinbase’s ad. In Coinbase’s world, crypto supposedly evens the financial odds to such a degree that houses suddenly become affordable and debt becomes mostly useless.



Crypto indeed can bank the unbanked. For those without easy access to traditional finance rails, much of blockchain’s promise is that it offers a permissionless sandbox in which to store value, transfer funds, own protocols and unlock generational wealth by investing in a tidal wave of digital assets.



To some degree, all that is true. And Coinbase’s advert actually hinges on the idea that crypto is an inflation hedge. Inflation is a massive rolling boulder, and we’re Indiana Jones in Raiders of the Lost Ark desperately hoping to outrun it.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/16022165/embed#?secret=dCanYmiotq" data-secret="dCanYmiotq" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">The small green dot in the middle? That’s US dollar inflation</figcaption></figure>



Opting into crypto — and the myriad <a href="https://blockworks.co/news/brian-armstrong-tokens-for-science">token economies</a> that come with it — is a cheat code for dodging it. These are internet-native currencies that may well outperform the dollar, after all.



It&#8217;s enough to make a crypto exchange want to film a dramatic advertisement about it. But one key detail missing is crypto’s own addiction to printing money.&nbsp;



Comparing circulating supplies for the top 100 or so cryptocurrencies over the past two years shows nearly three quarters have supply inflation greater than US dollar inflation.



<ul class="wp-block-list">
<li>About 40% have seen supplies increase by 50% or more since December 2021.&nbsp;</li>



<li>Almost a quarter of token supplies have more than doubled.</li>



<li>Their average supply inflation over the past year was 43%, compared to a US dollar inflation rate of 5.55%.</li>
</ul>



In some instances, the increases in supply converted to market cap growth even where token prices went down.



Take budding layer-1 blockchain Kava: The supply of its <a href="https://blockworks.co/price/kava">native token</a> has multiplied seven times over the past two years, while its price lost 80% of its value. Its market cap still grew more than 40%.



Similar stuff for Immutable (<a href="https://blockworks.co/price/imx">IMX</a>), the Ethereum layer-2 network focused on gaming NFTs: Its supply has also multiplied seven times while its token price has collapsed 75%. IMX’s market cap — determined by multiplying price versus circulating supply — grew by two-thirds.&nbsp;



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/16033997/embed#?secret=iP40J6IplK" data-secret="iP40J6IplK" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Bigger bubbles mean higher supply inflation — and they tend to post lower returns</figcaption></figure>



In crypto’s defense, token unlock schedules and supply distributions are usually communicated somewhere online, with maximum token supplies often outright defined by code, which can’t be done for the US dollar.



And token supply inflation isn’t exactly the same as the consumer price <a href="https://edition.cnn.com/2023/11/14/economy/consumer-price-index-october/index.html">inflation</a> seen in the US over the past couple of years.&nbsp;



In many cases, supply inflation is a feature, not a bug. Tokens are added to the circulating supply to incentivize usage, pay salaries and allround fund development.&nbsp;



This makes token supply inflation more similar to the stock options employees at Web2 tech companies receive, rather than anything like the Federal Reserve’s <a href="https://www.investopedia.com/terms/q/quantitative-easing.asp">quantitative</a> easing throughout the pandemic — on which recent US inflation has been <a href="https://www.ft.com/content/2c3fc086-b543-4efe-b696-8c84aa919b69">blamed</a>.&nbsp;



(Although I wouldn’t describe tokens like that around the SEC, which might get the idea that they’re tokenized equity.)&nbsp;



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/16040205/embed#?secret=IeWuHEA2iG" data-secret="IeWuHEA2iG" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Uniswap is by far the most deflationary top-100 crypto</figcaption></figure>



For now, crypto’s addiction to inflation isn’t totally noticeable. Less than one third of tokens with more than zero supply inflation over the past year have seen falling token prices over the same period.



Because the number goes up despite the additional supply, your average crypto investor might not even realize their tokens are being watered down by the fresh tokens regularly unleashed on markets.&nbsp;



Just like how the average wage earner might not see their dollars are worth less the longer they sit in a bank account, even though the US dollar is worth more and more.



The raw censorship resistance of Bitcoin and the permissionless nature of the decentralized finance economy supported by other prominent networks are certainly worth celebrating. They may even be enough to base an advertisement on.



But if what Coinbase says is true — that crypto is a legitimate alternative to our current system — then it must kick its addiction to supply inflation, or else continue to speedrun the worst of what legacy finance has offered us so far.



Updated Dec. 10, 2023 at 12:31 am ET: Corrected market cap reference.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">David is an Editor based in the Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb&#8217;s crypto vertical before launching Protos in 2021. He&#8217;s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co</div>


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Crypto still has a long way to go to live up to Coinbase’s latest ad

$10B Mystery: Is OKB Really the 7th Largest Crypto?

Shalini Nagarajan

<div id="highlights-block_633427bfd4a76" class="highlights">
 <ul>
 <li>“Once the speculative fervor dies down, market caps often tend to tank in a big way,” a crypto exec told Blockworks</li>
 <li>Developer activity, dApp usage, user growth and the number of active wallets are better indicators of strength</li>
 </ul>
 
</div>



Market capitalization in the crypto world can be misleading indicators of value, and industry watchers say metrics such as user growth and developer activity should be given more weight.&nbsp;



A cryptoassets’ market cap is worked out by multiplying the number of tokens or coins in circulation by the current market price of a single unit. The metric is widely — but, perhaps, incorrectly — used to assess the performance of a cryptocurrency and how valuable it is.



It’s true that the higher the price, the higher the market cap of the corresponding cryptocurrency, but they don’t account for token lockup periods or supplies held by company insiders.&nbsp;



In the traditional finance world, market caps certainly hold a lot of significance. That’s simply because they represent the dollar market value of equity, which allows investors to weigh a company’s profitability rather than going by its sales figures.



One problem with the metric unique to crypto is that lost tokens end up being counted towards market value, rather than subtracted from the supply. For instance, <a href="https://www.nytimes.com/2021/01/12/technology/bitcoin-passwords-wallets-fortunes.html" target="_blank" rel="noreferrer noopener">around 20%</a> of the current supply of bitcoins, or $140 billion, is either lost or stuck in neglected wallets. Should lost tokens be accounted for in terms of current value of the rest?



<h3 class="wp-block-heading">Growth, usage of protocol are better crypto market indicators</h3>



Looking at circulating market caps, more specifically, rather than <a href="https://capital.com/fully-diluted-market-capitalisation-in-cryptocurrency-definition" target="_blank" rel="noreferrer noopener">fully diluted ones</a>, can be deceptive, according to Oskari Tempakka, Token Terminal’s growth lead.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“That&#8217;s a metric that a lot of investors look at without taking into account locked tokens, vesting schedules etc. So there might be a really big difference between the circulating and the actual fully diluted market cap,” he told Blockworks.</blockquote>



Tempakka believes digging into developer documents and white papers to estimate token unlocks could have a big effect on the price of a single token. He added that many investors, ill-advisedly, don’t even bother to check market caps, and instead make decisions based on the price of a single token.



More valuable indicators, he says, are what service a particular project has put out there, how much usage it&#8217;s seeing and how much fee revenue the service generates.&nbsp;



“The most important indicator of value in your protocol, for me, is a fundamental analysis of what&#8217;s happening under the hood from a business perspective,” Tempakka said. “The more organic growth and usage you have, and the more active user growth you have, the higher the valuation of a protocol should be from a fundamental perspective.”



<h3 class="wp-block-heading">Volatility during market cycles</h3>



Market cap figures can also fluctuate wildly during <a href="https://cms.blockworks.co/crypto-total-market-capitalization-under-1t-after-10-fall/" target="_blank" rel="noreferrer noopener">bear</a> and bull cycles, due to changing market sentiment, and fail to reflect deeper insight such as volume of transactions, number of users or activity on the network.



“In bull markets, you often see protocols explode in value because of speculation. But once the speculative fervor dies down, market caps often tend to tank in a big way,” Daryl Kelly, founder of NFT platform LTD.INC, told Blockworks. So this metric says very little about whether people like using whatever crypto protocol is in question, including a particular DeFi or metaverse project, he added.



<h3 class="wp-block-heading">Blockchain developer numbers are another good metric</h3>



Kelly thinks developer activity is a more useful indicator of the strength of a crypto or project.&nbsp;



“Just look at Ethereum and Solana. The amount of developer activity on these networks is immense, and it’s only growing,” he said, adding that this criterion suggests sufficient demand from users on these blockchains to build more applications for everything from DeFi and NFTs to crypto games.



A <a href="https://a16zcrypto.com/state-of-crypto-report-a16z-2022/" target="_blank" rel="noreferrer noopener">State of Crypto report</a> published by a16z in May shows Ethereum managed to attract 4,000 monthly active developers, handily beating those of other protocols.


<div class="wp-block-image">
<figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png" alt="" class="wp-image-32684" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/09/2022-09-28-StateOfCrypto_FA2-18-1024x576.png?w=1920 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Image Source: <a href="https://a16zcrypto.com/state-of-crypto-report-a16z-2022/" target="_blank" rel="noreferrer noopener">a16z</a></figcaption></figure></div>


Santiago Portela, CEO of FITCHIN, agreed that market caps are a flawed metric, pointing out that Solana’s doesn’t reflect the blockchain’s strength.



From a pricing perspective, Solana may be perceived as performing badly. But it’s a different story when considering the volume of NFTs transacted on the blockchain. This month, trading volumes on Solana-based marketplaces like Magic Eden and Metaplex hit their <a href="https://www.theblock.co/post/169050/nft-mints-on-solana-have-surged-to-an-all-time-high?utm_source=twitter&amp;utm_medium=social" target="_blank" rel="noreferrer noopener">highest level since May</a>.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It tells me that adoption is increasing in that network and that there are builders behind it — indeed, these are the key aspects to truly understand the strength and resilience of the ecosystem,” he said.</blockquote>



But not everyone believes market caps are a weak measure. Nischal Shetty, CEO of Indian crypto exchange WazirX, said they can be a helpful tool to gauge the strength of various protocols. But he agrees that hype during bull markets can lead market caps for obscure protocols to explode beyond the utility that they offer.



More reliable metrics — aside from developer numbers — include user growth, the number of active wallets and dApp (decentralized apps) usage, according to Shetty.



“A reason behind Ethereum’s success is that it has a large number of applications built on it that in turn attract users. And this user growth, moreover, attracts more developers. So, in this case, you have a virtuous cycle in which developer activity and user growth feed off of each other. That’s why I think it’s important to look beyond the hype, including market capitalization,” he said.



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