2024 Crypto Innovations: Beyond the Horizon of ETFs

• An Exciting Year for Spot Bitcoin ETFs
• Fundamental Belief in Digital Assets
• Interpreting Asset Performance with Dune Dashboard
• A Blend of Leverage and Liquidity
• Looking at Other Aspects: DeSci and RWAs
• The Role of Ethereum and L2 Chains
• Patience Is Key

An Exciting Year for Spot Bitcoin ETFs

The dawn of a new year marks a time of unprecedented possibilities. The approval of spot Bitcoin$42,260 -0.64% ETFs is a topic of fervent discussion. This development presents a thrilling occasion for retail to gain exposure to digital assets, conveniently sidestepping the more complex aspects of cryptocurrency. Yet, it's crucial to note that much of the alpha in this area has been capitalized on already. This raises the question: where should we seek value in the ecosystem?

Fundamental Belief in Digital Assets

At Hedgehog, there's a firm belief in the inherent value of myriad digital assets. This belief enables the crafting of narratives around collections of tokens and facilitates the identification of key performance indicators. These indicators are pivotal in driving the demand for the underlying asset. Although past performance isn't a guaranteed predictor of future success, the year 2023 provides significant lessons in spotting unrecognized alpha opportunities in the forthcoming year.

Interpreting Asset Performance with Dune Dashboard

Thanks to the remarkable efforts by the team at @cryptokoryo, the Dune Dashboard enables seamless monitoring of performance across various asset baskets. The selection of sensible defaults aids in the visualization of potential narratives. The year 2023 witnessed several winners, including liquid staking derivative tokens on layer 2 protocols (examples: ALCX, ASX, PENDLE), and DeFi 2.0 protocols (examples: DYDX, FXS, INST). Interestingly, these were the only ones that outperformed simple Bitcoin holding. Money Market protocols (examples: AAVE, COMP, QI) and Decentralized Physical Infrastructure Networks (DePIN, examples: FIL, RNDR, DIMO) were close on their heels.

A Blend of Leverage and Liquidity

The commonality between these narratives might be a blend of leverage and liquidity. These are crucial elements to yield better than the 5% Treasury rates witnessed last year. These characteristics prove their merit more when accessed on a shared database and runtime, such as a blockchain. However, DePIN does not fit this thesis seamlessly.

Looking at Other Aspects: DeSci and RWAs

Narratives like Decentralize Science (DeSci, examples: VITA, HAIR, GROW) and Real World Assets (RWAs, examples: MKR, MPL, CPOOL), could be coming into their own. These technologically and regulatorily sensitive applications are beginning to make strides with significant hardware deployment and licensing milestones leading to real-world adoption.

The Role of Ethereum and L2 Chains

It's also beneficial to monitor where developers are deploying contracts and managing token inventory. Majority of the ETH volume has commenced migrating to its L2 chains, where transactions are speedy and cost-effective. Some are advocating an appchain thesis, where the future will be dominated by individual apps owning their own L2, similar to Coinbase's BASE. According to the price action of their hottest assets, Avalanche, Arbitrum, and Optimism$3.67 -1.41% demonstrate strong growth potential.

Patience Is Key

No matter which thesis one chooses to back, it's essential to remember that research and development efforts can take years to yield results and lead to end-consumer adoption. While speculation is enticing, a steady, patient approach can significantly outperform in the long term. For example, one would have needed to hold BTC for 15 years to experience its entire growth trajectory. Perhaps the next thesis will have a similar tale to tell.

Edited by Jonathan Stoker