Beyond Bitcoin and Ethereum: Investing in the Full Fundamental Value of Digital Assets

Feb 13, 2024

Introduction

From a traditional allocator’s standpoint, crypto has a lopsidedness problem. Two megacap assets—Bitcoin and Ethereum—dominate 70% of the market capitalization for digital assets. Well-supported investment theses exist for both assets, but it is critical not to overlook the fundamental value of blockchain-powered technologies that are driving new business sectors like decentralized financial services, computing, gaming, and smart contract platforms.

While the regulatory approval and institutional offering of vehicles for exposure to megacap assets like Bitcoin and Ethereum is an important first step toward broad-based investor adoption, we believe the next step requires diversifying one’s crypto exposure. Constructing a portfolio that encompasses a broad range of investable digital assets reduces single-token concentration and helps grow expertise in the entire asset class and its underlying business value.

As investors progress on their crypto learning journey and position themselves for 2024, remaining open to the investment cases for other sectors is key. Just like crypto can be diversifying to stocks and bonds, different crypto sectors can be diversifying to each other (see our related posts here and here).

Below, we highlight a collection of digital assets from different crypto sectors that exemplify fundamentally valuable blockchain-powered technologies, along with their business descriptions, notable company milestones, and our market commentary. Then, we provide a guide to a multi-sector digital asset allocation for investors seeking a long-term, fundamentals-oriented approach for their crypto exposure.

All data herein as of Feb. 12, 2024. Please read data disclosures and disclaimer at the end for further information.

Chainlink

  • Symbol: LINK

  • Sector: Utilities

  • Circulating Market Cap (USD): $12.1 billion

Company Description

Chainlink is a blockchain “infrastructure” company that primarily expands the breadth and integrity of data that can be used on-chain. Specifically, LINK aims to securely introduce non-blockchain data feeds—like those from traditional financial markets, real estate markets, health industries, and sports betting—to the blockchain in a way that can be used by smart contracts. This has the potential to significantly improve market efficiencies, reducing transactional frictions and fees between buyers and sellers. Combining market data with blockchain capabilities could supercharge transactional efficiency by removing “middleman” industries like brokers or other platforms that intermediate transactions between parties, among many other uses cases.

Key Business Milestones

  • Growth in oracles: Data providers for Chainlink are called “oracles.” LINK has experienced meaningful growth in the number of oracles available via its network, now offering over 1,000 data feeds. This growth reflects robust competition by data providers to enter the blockchain ecosystem via Chainlink and reveals an increasing reliance on Chainlink's infrastructure to secure and validate off-chain data for blockchain applications.

  • Moving SWIFT-ly: In 2023 the well-known payments system SWIFT announced it was using the Chainlink network to test blockchain technology with over a dozen major financial institutions. Following success with the SWIFT collaboration, Chainlink also secured a partnership with one of Australia’s largest banks, ANZ. The bank will leverage Chainlink to transfer funds on blockchain networks.

Roadmap Highlights

  • Evolving focus: Chainlink has its sights set on two major areas of product development beyond data delivery: interoperability and tokenization. “Interoperability” generally refers to enabling transfers across different blockchain networks (this type of technology would be attractive to traditional banks or payments companies), and “tokenization” is a broad term for the blockchain-ification of traditional financial assets.

Market Commentary

  • Jump-starting 2024: LINK has gained approximately +38.5% YTD 2024, significantly outpacing the overall crypto market.

Solana

  • Symbol: SOL

  • Sector: Smart Contract Platforms

  • Circulating Market Cap (USD): $48.2 billion

Company Description

Often viewed as an alternative or rival to Ethereum, Solana is a blockchain network that similarly hosts decentralized applications but at significantly faster processing speed vs. Ethereum.

Key Business Milestones

  • Sturdy growth: Solana has seen notable growth, climbing to hundreds of thousands of daily active users and reporting 2,500-3,000 active developers, producing a surge in activity. This activity indicates increasing “Dapp” development (decentralized software applications including games, “DeFi,” sports betting, and social media, often powered by smart contracts) and user adoption of those applications within the Solana ecosystem.

  • Surpassing Ethereum: Solana has consistently surpassed Ethereum in daily transactions—with its high throughput and low transaction fees attracting users and developers seeking scalable blockchain solutions—and recently nudged past Ethereum’s daily active users:

Roadmap Highlights

  • Developer focus: Solana places heavy emphasis on improving developer experience, with developer retention and app innovation being significant KPIs for the network. Much of Solana’s 2024 roadmap focuses on technical improvements with the goal of improving the breadth and quality of apps on its network.

Market Commentary

  • Outsized gains: Solana’s price rallied more than 900% in 2023, making it the best performing digital asset of the year among crypto assets that started the year with a market capitalization in excess of $1B. SOL outpaced competitor ETH’s 2023 return of ~90% by 10x.

  • Hampered by outages: Despite notable progress for the network, Solana is still maligned by certain users and investors for its multiple network outages over the course of its history, including a recent 5-hour outage on Feb. 6th that brings the count to 11 outages in two years.

Render

  • Symbol: RNDR

  • Sector: Information Technology

  • Circulating Market Cap (USD): $1.8 billion

Company Description

Render is an example of an application built on a blockchain network (Ethereum). Render lends graphical computing power to artists and technologists creating 3D and AI-based media.

Key Business Milestones

  • Market-making for computing power: Render built an innovative way of connecting next-generation media creators to suppliers of computing power (“mining partners” willing to rent out their GPU capabilities).

  • Brand-name advisors: RNDR counts Brave browser CEO Brendan Eich and CGI-pioneering movie director J.J. Abrams among its strategic advisors.

Roadmap Highlights
Market Commentary

  • Outperformer: Amid a broader sell-off for digital assets at the start of 2024, Render has gained +6.4% YTD alongside other outperforming digital assets included in the IT and Utilities sectors like Chainlink (LINK). These sectors include assets that strengthen and decentralize the computing resources and data pipelines used by blockchain applications, and tend to exhibit meaningful beta to AI and metaverse markets as these networks have close business overlap with AI and gaming.

Immutable

  • Symbol: IMX

  • Sector: Metaverse and Media Services

  • Circulating Market Cap (USD): $4.2 billion

Company Description

Australia-based Immutable is another key example of an Ethereum-powered application that enables software developers to easily build and host “Web3” games (internet gaming akin to e-sports), offering a suite of gaming experiences that features NFT marketplaces and in-game player economies.

Key Business Milestones

  • Impressive fundraising: Immutable raised $200M on a $2.5B valuation in early 2022—an exceptionally favorable time for Web3 companies to fundraise—providing the company a massive cash reserve. Shortly after in June 2022, the company also launched a $500M venture fund (Immutable Ventures), expanding its mandate to include venture investing in companies focused on Web3 gaming and NFT innovation.

  • Strategic partnerships: IMX has landed a number of strategic partnerships with leading companies in the gaming industry, including Ubisoft and GameStop, that bring NFT capabilities to “Web2” gaming firms.

Roadmap Highlights

  • Betting big on gaming: Immutable’s product roadmap reportedly encompasses three pillars: improving player experience (platform users), improving developer experience (platform contributors), and enhancing the underlying technical mechanics by which revenue is shared between builders and users on its network.

  • APAC focus: IMX expects the next significant wave of blockchain adopters to enter through Web3 gaming vs. other potential use-cases like DeFi, and with a large cash war chest it has the potential to deploy resources aggressively toward gaming. Given a mix of regulatory ambiguity toward NFT financialization in the U.S. and the Sydney-based company’s proximity to Asia-Pacific markets like Japan and Korea, Immutable appears to have found stronger product-market fit in APAC markets and maintains a significant focus on pursuing early growth in these regions.

Market Commentary

  • Recent rally: IMX has gained approximately +43.7% YTD 2024, notching single-day gains of 16% and 11% on Feb. 10th and Feb. 12th, respectively.

  • Volatile sector: the Metaverse and Media Services sector typically exhibits higher volatility compared to other digital asset sectors.

 dYdX

  • Symbol: DYDX

  • Sector: Decentralized Finance

  • Circulating Market Cap (USD): $900 million

Company Description

A decentralized trading exchange (“DEX”) designed for trading perpetual swaps—a crypto-specific type of derivative contract that behaves like a traditional swap but doesn’t have an expiration date, enabling continuous exposure and removing the need for regular settlement or rollover operations. The combination of decentralization, which reduces certain t-costs like commissions and typically increases traders’ security and privacy, with a powerful new version of the traditional swap derivative has the potential to lure institutional hedgers.

Key Business Milestones

  • Margin trading: dYdX introduced margin trading early in its development (dYdX launched in 2017), allowing up to 10x leverage for most assets and 20x for BTC and ETH, enabling users to amplify their trading positions while maintaining DEX transparency.

  • Expansion into lending: in 2020 dYdX expanded its offerings beyond decentralized trading to include lending services, catering to a broader range of financial needs.

  • Sustained adoption: in 2023 dYdX saw robust trading volume, with daily volumes often exceeding $1B, reflecting growing activity and liquidity on its decentralized exchange:


Roadmap Highlights

  • Enhanced user interface: the company is working on enhancing its user interface to make DEX trading and lending more accessible and user-friendly, potentially attracting a broader audience to its platform.

Market Commentary

  • Stable TVL: dYdX has seen stable Total Value Locked (TVL) on its platform, with a daily average of ~$360M in 2023, suggesting relatively sticky user adoption and confidence in its services.

  • Competition: the company is actively vying with DEX competitors Uniswap and Sushiswap for decentralized trading volume

Guide to a Multi-Sector Allocation Approach

With a holistic view that encompasses the entire digital asset class and its constituent sectors, investors constructing their own or their clients’ crypto allocations should ask themselves the following questions pertaining to crypto exposure beyond Bitcoin and Ethereum:

  1. Where do these assets fit in my crypto allocation?

  2. How much should I allocate to them?

  3. How do I accomplish this?

Where do these assets fit in my crypto allocation? How much should I allocate to them?

There are multiple ways to approach investing in crypto, which we discuss here. At Truvius, we take the systematic approach to portfolio management. Rather than trying to hand-pick individual winners, we have a simple mission: build investable, diversified portfolios of digital assets that systematically rebalance to meet passive or active portfolio construction goals. A systematic approach creates consistent exposure to the broader crypto market—drawing clean boundary lines between asset categories and allocating to them in a rules-based way—and provides a low-touch, long-run oriented approach to the asset class as a whole.

With a passively implemented systematic portfolio, investors access automated exposure to the overall crypto market that spans various digital asset sectors (which are often diversifying to each other, varyingly outperforming and underperforming at different times). At Truvius, our active portfolios start with similar sector-based or size-based strategic allocations, but then layer on quantitative techniques to systematically overweight or underweight assets according to blockchain and market fundamentals.

How do I accomplish this?

As we’ve written about before, investing in crypto can feel uniquely challenging. With Truvius, we make accessing digital asset portfolios simple.

Truvius is a comprehensive asset management platform that brings time-tested portfolio management solutions to the digital asset class. We serve investors and family offices seeking fundamentals-driven systematic active management or thoughtfully constructed, broad-based passive exposure to digital assets—all via direct ownership-style crypto SMAs, which remove the some of the complexities and barriers of typical fund structures.

Our platform offers an intuitive, turnkey marketplace of active and passive portfolios (which can be further customized to your exposure preferences) alongside automatic rebalancing, reporting, and performance analytics. Learn more by getting started here for high-net-worth individuals and here for family offices.

Conclusion

Market commentators often generalize non-mega cap crypto assets as “Alt-Coins,” primarily owing to the nascency of the asset class and the learning curve associated with its mosaic of use-cases, but this generalization overshadows the fundamental value and diversifying properties both within and across the various sectors that comprise the digital asset class.

As investors contemplate their first crypto allocation for themselves or their clients, or position their existing digital asset exposure for 2024 and beyond, remaining open to the investment cases for all sectors is critical to a long-term approach.


Disclaimer and Data Disclosures

This commentary has been prepared by Truvius (the “Company”) solely for informational purposes and should not be construed as legal, business, tax, regulatory, accounting, investment or other advice. The inclusion of the assets mentioned herein does not imply our endorsement of or investment in them. The information contained herein does not purport to be all-inclusive or to contain all of the information a reader or prospective or existing investor may desire. In all cases, readers and interested parties should conduct their own investigation and analysis of the Company, its products, and the data set forth in this information. The Company makes no representation or warranty as to the accuracy or completeness of this information or its construction and shall not have any liability for any representations (expressed or implied) regarding data or information contained in, or for any omissions from, this information. This Information includes certain statements provided by the Company with respect to the historical performance and on-chcain data of the assets described above. No representations are made as to the accuracy of such statements. Inevitably, some assumptions made about the assets, their performance, or investability will not materialize, and unanticipated events and circumstances may affect the ultimate financial results of these assets. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections or expected performance of products may be inaccurate in any material respect. Neither the U.S. Securities and Exchange Commission nor any U.S. state or non-U.S. securities commission has reviewed or passed upon the accuracy or adequacy of this post. Any representation to the contrary is unlawful.

Connor Farley