Can L1 tokens compete with Bitcoin in the cryptocurrency space?

Author: AJC, Research Manager at Messari; Source: X, @AvgJoesCrypto; Translation: Shaw, Jinse Finance

Cryptocurrency Drives Industry Development

Refocusing on cryptocurrency is crucial, as it is ultimately the main target that most of the industry’s capital seeks to invest in. The total market capitalization of the cryptocurrency market has reached $3.26 trillion. Of this, Bitcoin accounts for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, about $0.83 trillion is concentrated in other Layer-1 (L1) protocol tokens. In total, about $2.63 trillion (about 81% of all cryptocurrency funds) is allocated to assets that the market already regards as money or believes might acquire a monetary premium.

Given this, whether you are a trader, investor, capital allocator, or developer, it is essential to understand how the market assigns and withdraws monetary premium. In crypto, nothing impacts valuations more than whether the market is willing to treat an asset as money. Thus, predicting where future monetary premiums will accumulate is arguably the most important element in constructing a portfolio in this industry.

So far, our primary focus has been on Bitcoin, but the other $0.83 trillion worth of assets are also worth examining—they might or might not be considered money. As previously mentioned, we expect Bitcoin to continue capturing market share from gold and other non-sovereign stores of wealth in the coming years. But what does this mean for L1 tokens? Will they rise with the tide, or will Bitcoin partially close the gap with gold by siphoning off monetary premium from other L1 tokens?

First, it’s helpful to understand the current valuation status of L1 tokens. The top four L1 tokens are Ethereum ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion), and Solana ($74.68 billion), with a combined market cap of $686.58 billion—83% of the entire L1 altcoin market. After the top four, valuations drop off quickly (TRX has a market cap of $26.67 billion), but interestingly, the long tail is still significant. L1 tokens ranked outside the top 15 have a total market cap of $18.06 billion, accounting for 2% of the total L1 altcoin market cap.

Importantly, the market cap of L1 tokens does not purely reflect their implied monetary premium. Their valuations are mostly based on three framework types:

(i) Monetary premium,

(ii) Real economic value (REV), and

(iii) Demand for economic security,

Therefore, a project’s market cap does not stem solely from the market viewing it as money.

Monetary Premium Is the Primary Driver of L1 Valuations, Not Revenue

Despite these competing valuation frameworks, the market has become increasingly inclined to assess L1 tokens from the perspective of monetary premium rather than revenue-driven approaches. Over the past few years, the overall price-to-sales ratio (P/S) of all L1 tokens with a market cap over $1 billion has remained relatively stable, typically ranging from 150x to 200x. However, this overall figure is misleading because it includes Tron and Hyperliquid. In the past 30 days, TRX and HYPE generated 70% of the revenue in this category, but only account for 4% of the market cap. Excluding these two outliers, the truth becomes clear: even as revenue declines, L1 valuations have continued to rise. The adjusted P/S ratio has also steadily increased.

• November 30, 2021 - 40x
• November 30, 2022 - 212x
• November 30, 2023 - 137x
• November 30, 2024 - 205x
• November 30, 2025 - 536x

A revenue-based explanation might suggest the market is simply pricing in future revenue growth. However, this explanation doesn’t hold up. In the same set of L1 tokens (still excluding TRX and HYPE), revenue has declined in all years except 2024:

• 2021 — $12.33 billion
• 2022 — $4.89 billion (down 60% YoY)
• 2023 — $2.72 billion (down 44% YoY)
• 2024 — $3.55 billion (up 31% YoY)
• 2025 — $1.7 billion (down 52% YoY)

We believe the simplest and most direct explanation is that these valuations are driven by monetary premium, not by current or future revenue.

L1 Tokens Continue to Underperform Bitcoin

If L1 token valuations are driven by expectations of monetary premium, then the next step is to understand what actually shapes these expectations. A simple test is to compare the price performance of L1 tokens to Bitcoin. If the expectation for monetary premium mainly reflects Bitcoin’s price movements, then the performance of these assets should have a similar beta to Bitcoin. On the other hand, if monetary premium expectations are driven by factors unique to each L1 asset, we would expect much weaker correlation with Bitcoin and more idiosyncratic performance.

To better represent L1 token performance, we examined the performance of the top ten L1 tokens by market cap (excluding HYPE) relative to Bitcoin since December 1, 2022. These ten assets account for about 94% of the L1 token market cap, thus representing the sector as a whole. During this period, eight out of these ten assets underperformed Bitcoin in absolute terms, with six lagging behind Bitcoin by 40% or more. Only two assets outperformed Bitcoin: XRP and SOL. XRP’s excess return was only 3%, and considering XRP’s historical capital flows mainly come from retail, we won’t place too much emphasis on this. The only asset that significantly outperformed Bitcoin was SOL, which returned 87% more than Bitcoin.

A deeper analysis of SOL’s outperformance actually suggests it may have underperformed. During the same period that SOL outperformed Bitcoin by 87%, Solana’s fundamentals grew exponentially. Total value locked (TVL) in decentralized finance (DeFi) grew by 2,988%, fees grew by 1,983%, and decentralized exchange (DEX) trading volume grew by 3,301%. By any measure, the Solana ecosystem grew 20 to 30 times since the end of 2022. However, as the asset meant to capture this growth, SOL only outperformed Bitcoin by 87%.

Read that again.

To achieve significant outperformance against Bitcoin, an L1 crypto ecosystem needs 2,000%-3,000% growth just to generate double-digit excess returns.

In summary, we believe that while L1 valuations are still based on expectations of future monetary premium, the market’s confidence in these expectations is quietly weakening. At the same time, the market’s faith in Bitcoin’s monetary premium has not wavered, and Bitcoin’s lead over L1 tokens is widening.

While cryptocurrencies technically do not require fees or revenue to support their valuations, these metrics are essential for L1s. Unlike Bitcoin, the core value of an L1 lies in building an ecosystem (including applications, users, throughput, economic activity, etc.) that supports its token. However, if usage of an L1’s ecosystem declines year after year—partly due to lower fees and revenue—then that L1 token loses its only competitive edge over Bitcoin. Without real economic growth, it becomes increasingly difficult for the market to believe the crypto narrative around these L1 tokens.

Looking Ahead

Looking ahead, we expect this trend to persist through 2026 and beyond. With few exceptions, we anticipate that the market share of L1 altcoin assets will continue to be eroded by Bitcoin. Their valuations are mainly driven by expectations of future monetary premium, and as the market increasingly recognizes Bitcoin as the most competitive among all cryptocurrencies, these valuations will steadily decline. Although Bitcoin will face challenges in the coming years, these issues remain unclear and are subject to many unknowns—not enough to provide substantial support for the monetary premium of other L1 assets at present.

For L1 platforms, the burden of proof has shifted. Compared to Bitcoin, their narratives are no longer compelling, and they cannot rely indefinitely on broad market enthusiasm to sustain their valuations. The era when “we might someday become money” was enough to support trillion-dollar valuations is coming to an end. Investors now have a decade’s worth of data showing that L1 monetary premium is only sustainable during periods of rapid platform growth. Outside of those rare boom periods, L1 tokens consistently lag behind Bitcoin, and once growth slows, the monetary premium disappears as well.