Hooked on growth, bitcoin investors turn to smart tokens
For investors living on the digital edge, bitcoin is starting to look a little old-fashioned.
Hooked on high growth, some are turning away from the original cryptocurrency – designed as an alternative to regular cash – in favor of its descendants created as native tokens of blockchain platforms that host smart contracts and apps.
MarketVector’s Smart Contract Leaders Index, which tracks key tokens of this type – including ether, dot and solana – is up 36 percent in 2023, outpacing even bitcoin’s 33 percent rise. Solana’s token is up 76 percent this year.
Bundeep Rangar, CEO of crypto-focused investor Fineqia, said he expected the biggest crypto returns to come from smart contract tokens on platforms that support decentralized finance (DeFi) apps.
“Those are the ones that you will find capital growth, similar to what a growth stock would be,” he added.
Some investors in the $1 trillion world of digital assets seem to agree, according to CoinShares data showing that investment products tracking ether and solana have seen small inflows, even as bitcoin products have had four consecutive weeks of outflows.
Around seven of the top 20 cryptoassets are smart contract tokens, including ether and dot, solana and cardano.
BofA analysts also pointed to smart contract tokens and the blockchain-based applications they run, which are similar to growth stocks in the stock world, typically technology stocks.
“We expect 2023 to be the year of token price divergence,” analysts at Bank of America wrote in a Feb. 24 research note.
BITCOIN STILL BOSS
Bitcoin has long traded in tandem with tech stocks, but that cord may be fraying just as smart contract tokens increasingly take up its crypto super-growth mantle.
The cryptocurrency’s 30-day correlation with the Nasdaq turned negative on February 23 for the first time since early December, with a measure of one indicating the two assets are moving in lock step.
Some crypto watchers say the relative strength of smart contract tokens this year points to a solid performance by the most established DeFi protocols despite market developments in 2022. However, they warn that the global macro outlook and central bank policy could hit the growth of crypto projects and associated tokens.
James Butterfill, head of research at CoinShares, cautioned that it was also too early to call a major divergence in crypto. Bitcoin’s shadow still looms over the sector, with its share of the total crypto market cap up slightly to 40 percent, from 38 percent at the start of the year.
But on the other hand, Mr. Butterfill said such departures could be a potential sign of crypto’s rise.
“We should increasingly take the view that as the market evolves, it will become more sophisticated and more mature, and we will begin to see that price differential.”
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