Original Article Title: The Crypto Theses 2026
Original Article Author: Messari
Translation: Peggy, BlockBeats

Editor's Note: Against the backdrop of a gloomy sentiment in 2025 but with accelerated institutional entry, Messari's "The Theses 2026" report focuses on seven core areas: Cryptomoney, TradFi, Chains, DeFi, AI, DePIN, and Consumer Applications, systematically outlining the key narratives and structural trends that it believes will continue to have a significant impact in the coming years.

This article is an excerpt from "The Theses 2026" focusing on the core content of cryptomoney, highlighting Messari's logic and controversial points of view on asset monetary properties such as BTC, ETH, ZEC, etc.

Introduction

Welcome to "The Theses 2026"!

2025 may have been the most divisive year in the history of the crypto industry. Your final assessment of this year largely depends on where you stand and who you are.

If you are opening this report in an office overlooking Wall Street, then this may be the best year of crypto history you have experienced; but if you are on the other end of the spectrum, a trench warrior spending more than 12 hours a day lurking in Telegram and Discord groups, you may be nostalgic for the past. One thing is certain: 2025 once again proved that the volatility of this industry is as intense as the price charts we stare at every day.

Looking back on this year:

At the beginning of the year, we witnessed what hindsight revealed to be the most exciting token launch in history: TRUMP. Although the excitement quickly faded, this launch became an important stress test, validating how far the on-chain infrastructure has developed.

The world's largest government officially declared Bitcoin as a unique store of value asset, incorporating it into its official reserves, even leaving room for further accumulation in the future under the premise of "budget neutrality." Just two years ago, this was still a pipe dream.

The identity crisis that plagued Ethereum for two years finally reached its climax, and the result made Ethereum stronger. Today, Ethereum is consolidating its position as the hub of institutional adoption.

DACs (Digital Asset Custodians) became the buzzword of the year, and their collective buying pressure propelled the entire asset class to historic highs.

The groundbreaking GENIUS Act, the first milestone cryptocurrency legislation in the United States, has been officially signed, laying the foundation for what the U.S. Treasury Secretary envisions as a stablecoin market that could potentially expand to trillions of dollars in the future.

On October 10, the largest-ever cryptocurrency deleveraging event unfolded, with many assets dropping over 50% in a matter of minutes, and some assets even briefly trading at zero (literally). Following this, cryptocurrency assets notably underperformed compared to asset classes with strong historical correlations, such as gold, silver, and stocks.

Tomorrow's enterprises are being born on-chain. In terms of per capita profit, Hyperliquid and Tether may have already joined the ranks of the most profitable companies in history. Applications like Polymarket and pump.fun have successfully "crossed the chasm" and entered the mainstream cultural context.

Amidst all this, Messari Research has been by your side to grasp the industry's trends. We have released two landmark research reports on the core trends of stablecoins and AI; our early 2024 projection for Hyperliquid has been validated, and we have continuously tracked its rise throughout the year. As the industry begins to rethink how cryptocurrency assets should be priced, we have been releasing valuation frameworks covering various areas, including L1, public chains, DePIN, lending protocols, as well as more specialized asset types such as launch platforms and AI hedge funds.

From Trump's tariff policies and their spillover effects on the cryptocurrency market to how tokenization is reshaping the collectibles industry, even bringing Pokémon cards onto the chain, we have maintained a suitably agile research pace. Messari's Protocol Services team has partnered with over 150 protocols to drive the industry forward with objective insights.

This year's "The Theses" is divided into seven core sections, focusing on: Cryptomoney, TradFi, Chains, DeFi, AI, DePIN, and Consumer Applications. In these sections, we will delve into the core narratives and themes that we believe will continue to have a key impact in the coming years.

Following the seven core sections, we have retained popular content such as Messari Analyst Picks and Messari Awards. New to this year's edition is Alumni Theses, featuring in-depth articles from several Messari alumni who are at the forefront of driving the industry forward. Finally, we also provide a sneak peek of a new analytical framework in development: the Disruption Factor.

Cryptocurrency as the Bedrock of the Industry: Core Theme

Authors: AJC, Drexel Bakker, Youssef Haidar

Bitcoin has become thoroughly separated from other crypto assets and is unquestionably the most dominant form of cryptocurrency at present.

The relative underperformance of BTC in the latter half of this year is partly due to selling pressure from early large holders. We do not believe this will evolve into a long-term structural issue, as BTC's "monetary narrative" is expected to remain robust in the foreseeable future.

L1 valuations are increasingly decoupling from their fundamentals. L1 revenue is significantly down year-over-year, with their valuation increasingly built on the assumption of a "monetary premium." With few exceptions, we expect most L1s to underperform BTC.

ETH remains the most contentious asset. Concerns about value capture have not completely dissipated, but the market performance in the latter half of 2025 suggests that the market is willing to view it as a cryptocurrency similar to BTC. If the market returns to a bull run in 2026, Ethereum's DAT may experience a "second life."

ZEC is gradually being priced as a privacy-centric cryptocurrency, no longer just a niche privacy coin. In an era of intensified surveillance, institutional dominance, and financial repression, it may become an important complementary hedge asset to BTC.

More and more applications may choose to build their own monetary systems rather than rely on the native asset of the network they operate on. Applications with social attributes and strong network effects are most likely to be the first to embark on this path.

Introduction

In this year's opening of "The Theses," we focus on the most fundamental and crucial element of the crypto revolution: currency. This is no coincidence.

When we began planning this year's Theses in the summer, we never anticipated that market sentiment would swing so dramatically towards the negative.

In November 2025, the Crypto Fear and Greed Index briefly dropped to 10, entering the "extreme fear" zone. Prior to this, there have only been a few instances in history where the index touched or fell below 10, namely during:

- The Luna crash in May-June 2022 and the 3AC contagion period

Large-scale Margin Call Cascade in May 2021

COVID-19 Market Crash in March 2020

Several Phases of the Bear Market in 2018–2019

In the entire development history of the crypto industry, moments of such profound market pessimism are few and far between, and almost always occur during periods when the industry is truly on the brink of collapse and its future prospects are severely questioned. However, it is evident that today's situation is different.

No major exchange has absconded with user funds; no blatant Ponzi scheme has been hyped to a valuation of hundreds of billions of dollars; and the overall market capitalization has not fallen below the previous cycle's peak.

Instead, crypto assets are being acknowledged by the highest levels of the global institutional framework and gradually integrated. The U.S. SEC has publicly stated that within two years, all U.S. financial markets are expected to be on-chain; the supply of stablecoins has reached a historic high; and the adoption narrative that we have reiterated for the past decade is now truly coming to fruition.

Yet, despite this, the sentiment in the crypto industry has rarely been this dismal. Almost every one or two weeks, there is a post circulating across platforms where someone is convinced they wasted their life in the crypto industry, or someone asserts that everything built in this industry will eventually be replicated, co-opted, or captured by existing institutions.

It is precisely in this stark contrast of continued emotional collapse and rising institutional adoption that now is the best time to reexamine the crypto industry from first principles. And the core principle that originally gave birth to this chaotic yet fascinating industry is actually extremely simple: to build a currency system that is superior and more alternative than the existing fiat system.

Since the birth of the Bitcoin genesis block, this ideal has been deeply ingrained in the industry's DNA. In that block, there is purposely engraved a line of information that later became widely known: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."

The significance of these origins lies in the fact that at some unnoticed stage, many people have already forgotten what problem cryptocurrency was originally created to solve.

Bitcoin did not emerge to provide banks with a more efficient settlement channel; it did not come to save a few basis points in forex transfers; and certainly not to power a perpetual, continuously issuing, speculation token "slot machine."

Its emergence was fundamentally a response to a malfunctioning monetary system.

Therefore, to truly understand the current position of the cryptocurrency industry, we must go back to the core question of the entire industry: why is cryptomoney important?

Why Cryptomoney?

For most of modern history, people have had little to no substantial choice in "what currency to use." Under today's fiat-based global monetary system, individuals are effectively tied to their country's currency and central bank decisions.

Nations dictate what currency you earn in, save in, and pay taxes in. Whether this currency is inflationary, devalued, or mismanaged systematically, you are passively subject to it.

Moreover, this circumstance is not different based on political or economic systems—whether in a free market, authoritarian regime, or a developing economy, almost the same pattern emerges: government debt is a one-way street.

Over the past quarter-century, government debt levels relative to GDP have significantly risen across major global economies. As the two largest economies globally, the general government debt-to-GDP ratio in the United States and China has increased by 127% and 289%, respectively. Regardless of political systems or shifts in growth patterns, the continuous expansion of government debt has become a structural feature of the global financial system.

When the pace of debt growth consistently outstrips economic output, the cost often falls most directly on savers. Inflation and persistently low real interest rates continually erode the purchasing power of fiat savings, essentially effecting a transfer of wealth from individual savers to the state.

Cryptomoney has provided an alternative to this system by separating the state from the currency. Throughout history, when inflation, capital controls, or stricter regulation served their interests, governments often proactively adjusted currency rules. Cryptomoney returns monetary governance to a decentralized network rather than being centralized in a single authoritative entity.

In this process, the "currency choice" re-emerges: savers can choose a currency asset that better aligns with their values, needs, and preferences without being forced to remain in a system that often undermines their long-term financial health.

Of course, the choice itself only makes sense when the "chosen entity indeed has advantages." Cryptomoney is precisely such, with its value foundation stemming from a set of attributes that have never coexisted before.

One of the cornerstones of the value of cryptomoney is its predictable, rule-based monetary policy. These rules do not stem from a commitment by any institution but are inherent properties of the software run by thousands of independent participants. Any rule changes require broad consensus rather than the discretion of a few, making arbitrary, sudden adjustments to monetary policy extremely difficult.

In stark contrast to the fiat currency system, where the money supply often passively expands under political or economic pressure, the operating rules of cryptomoney are open, predictable, and enforced through a consensus mechanism, immune to clandestine modifications.

Cryptomoney also fundamentally changes the way individuals safeguard their wealth. In the fiat currency system, true self-custody has become impractical, with most people having to rely on banks or other financial intermediaries to store their savings. Even traditional non-sovereign assets like gold often end up centrally stored in custodial vaults, reintroducing trust-based risks.

In reality, this means that once a custodian or a government makes a decision, your assets may be delayed, restricted, or even completely inaccessible.

Cryptomoney enables direct ownership, allowing individuals to self-custody and safeguard their assets independently of any custodial institution. As various financial restrictions, from bank withdrawal limits to capital controls, become increasingly common worldwide, the importance of this capability continues to rise.

Lastly, cryptomoney is designed for a globalized, digital world. It can transact cross-border instantly and in any amount without the need for any institutional permission. This sets it apart from gold significantly—gold is hard to subdivide, validate, and transport, especially in cross-border scenarios.

Conversely, cryptomoney can facilitate global transfers within minutes, without limits on scale, and without relying on centralized intermediaries. This ensures that individuals, regardless of their location or the political environment they are in, can freely manage and utilize their wealth.

Overall, the value proposition of cryptomoney is quite clear: it provides individuals with monetary choice, establishes predictable operational rules, eliminates single points of failure, and enables value to flow globally without restrictions. In a system where government debt continues to soar, and savers bear the brunt, the value of cryptomoney will only continue to rise.

Bitcoin: The Most Dominant Cryptocurrency

Bitcoin created the category of cryptocurrency, so it is only natural to start with it. Nearly seventeen years later, BTC still remains the largest and most well-known asset in the entire industry.

And since the nature of money ultimately depends on social consensus rather than the technical design itself, the key to determining whether an asset has "monetary status" lies in whether the market is willing to continuously assign a long-term premium to it.

Measured by this standard, BTC's position as the leading cryptocurrency is already very clear.

This has been most clearly demonstrated in BTC's market performance over the past three years. Since December 1, 2022, BTC has accumulated a 429% increase, rising from $17,200 to $90,400. During this process, Bitcoin has set multiple new all-time highs, with the most recent one occurring on October 6, 2025, when the price reached $126,200.

At the beginning of this bull market cycle, BTC's market cap of approximately $318 billion was not enough to rank it among the world's largest assets; however, today, its market cap has increased to $1.81 trillion, placing it as the ninth largest asset globally. The market has not only rewarded BTC with a higher price but has also propelled it into the top tier of the global asset system.

But more indicative is the change in BTC's performance relative to the entire crypto market. Historically, during a crypto bull market phase, as funds migrate along the risk curve towards higher-risk assets, Bitcoin Dominance (BTC.D) usually decreases; however, in this bull market cycle centered around BTC, this pattern has been completely reversed.

Over the same three-year period, BTC.D has risen from 36.6% to 57.3% (including stablecoins). This indicates that BTC is experiencing significant differentiation from the broader crypto market.

Among the top fifteen cryptocurrency assets by market capitalization on December 1, 2022, only two assets (XRP and SOL) outperformed BTC at that stage, and only SOL achieved significant outperformance (an 888% increase, compared to BTC's 429% increase).

The majority of other market assets significantly lagged behind, with many major market cap tokens barely breaking even during the same period, or even remaining in negative return territory.
Among them, ETH only rose by 135%, BNB increased by 200%, DOGE increased by 44%; whereas assets like POL (-85%), DOT (-59%), and ATOM (-77%) are still deeply retraced to this day.

This phenomenon is particularly noteworthy due to BTC's own scale. As an asset with a market capitalization in the trillion-dollar range, its price movement theoretically requires the mobilization of the most capital, yet it has still outperformed nearly all mainstream tokens. This indicates that there is genuine, sustained buying demand for BTC in the market; whereas most other assets act more like "β," only passively following an uptrend when BTC drives the entire market.

A key driver of sustained buying pressure on BTC is the accelerated adoption by institutional investors. The most representative form of institutional entry in this round is the physical Bitcoin ETF.

There is an almost insatiable demand for such products in the market. The iShares Bitcoin Trust (IBIT) launched by BlackRock has repeatedly broken ETF historical records and is hailed as "the most successful ETF launch in history."

Only 341 days after its listing, IBIT's assets under management (AUM) reached $70 billion, surpassing the record set by SPDR Gold Shares (GLD) by a whopping 1,350 days, marking a milestone performance.

The momentum brought by ETF listings in 2024 seamlessly extended into 2025. As of now, the total assets under management (AUM) of Bitcoin ETFs have increased by about 20% year-to-date, with holdings increasing from approximately 1.1 million BTC to 1.32 million BTC. At current prices, this is equivalent to over $120 billion worth of Bitcoin held by these products, accounting for over 6% of BTC's maximum supply.

Unlike the gradual decline in interest after the initial launch, the demand for ETFs has evolved into a continuous source of buying pressure, accumulating BTC steadily regardless of market conditions.

Furthermore, institutional participation is no longer limited to ETFs. Digital Asset Treasuries (DATs) became significant buyers in 2025, further strengthening BTC's role as a corporate reserve asset. While Michael Saylor's Strategy has long been the most prominent example of corporate Bitcoin accumulation, nearly 200 companies worldwide now hold BTC on their balance sheets.

Looking only at publicly traded companies, they collectively hold about 1.06 million BTC, representing approximately 5% of the total Bitcoin supply; of these, Strategy holds 650,000 BTC, far ahead of all companies, occupying by far the largest share.

Perhaps the most crucial event in 2025 that clearly distinguished BTC from other crypto assets was the formal establishment of the Strategic Bitcoin Reserve (SBR). The SBR, in institutional form, confirmed the consensus that the market had long since formed: BTC is not in the same category as other crypto assets. Within this framework, BTC is seen as a strategic monetary commodity, while other digital assets are unified into a separate asset pool and managed in a conventional manner.

In the official announcement, the White House described BTC as a "unique value storage tool in the global financial system" and likened it to "digital gold." More importantly, the executive order also directed the Treasury Department to develop potential strategies for future BTC holdings. Although actual purchases have not yet taken place, the mere existence of this "policy option" has sent a clear signal: federal-level policy-making has begun to view BTC from a forward-looking, reserve asset perspective.

Once future acquisition plans are implemented, Bitcoin's monetary status will not only be solidified within the crypto asset space but will also be further established across all asset classes.

Is BTC a "Good Money"?

Although BTC has established a leading position among various cryptomoneys, 2025 also sparked a new round of debates about its monetary attributes. As the largest non-sovereign monetary asset by current standards, gold remains the most important benchmark for evaluating BTC.

Against the backdrop of escalating geopolitical tensions and increasing market expectations for future monetary easing, gold has recorded one of its strongest annual performances in decades. In contrast, BTC has not followed this trend in lockstep.

Despite the BTC/XAU ratio hitting an all-time high in December 2024, it has since retraced by approximately 50%. This retracement is particularly noteworthy as it occurred while gold priced in USD continued to hit historic highs. Year-to-date, the price of gold has risen by over 60%, reaching $4,150 per troy ounce.

With the total market value of gold approaching $30 trillion and BTC accounting for only a small portion of it, this divergence naturally raises a valid question:

If BTC did not rise in tandem during one of gold's strongest periods, how secure is its status as "digital gold"?

If Bitcoin's price trend has not been in line with gold, then the next reference point to observe is its performance relative to traditional risk assets. Historically, BTC has shown a certain correlation with stock market indices at various stages, including SPY and QQQ.

For example, during the period from April 2020 to April 2025, the average 90-day rolling correlation coefficient between BTC and SPY was approximately 0.52, while its correlation with gold was relatively weaker at 0.18. Based on this historical feature, if the overall stock market weakens, then BTC's lagging performance compared to gold may be logically understandable.

However, this is not the case. Year-to-date, gold (XAU) has risen by about 60%, SPY has risen by 17.6%, QQQ has risen by 21.6%, while BTC has fallen by 2.9%. Considering that BTC's market cap is much smaller than that of gold and major stock market indices, and its volatility is higher, its significant underperformance relative to these benchmark assets in 2025 has inevitably raised questions about its narrative as a store of value.

Against the backdrop of gold and stocks hitting historical highs, based on BTC's past correlation performance, people might have expected it to follow a similar trajectory, but reality proved otherwise. Why is this so?

Firstly, it should be noted that this underperformance is not a long-term phenomenon throughout the year, but a relatively recent change. As of August 14, 2025, BTC's absolute year-to-date return rate is still higher than that of XAU, SPY, and QQQ. Its relative weakness only gradually emerged in October. What is truly worth noting is not how long the underperformance has lasted, but the magnitude of the underperformance.

Although multiple factors may have contributed to this result, we believe the most critical driver is the changing behavior of early, large coin holders. With BTC's institutionalization over the past two years, its liquidity structure has undergone a substantial change. The depth and regulated markets established through channels such as ETFs now allow large holders to sell off without causing drastic market impact — something that was nearly impossible in previous cycles.

For many of these holders, this marks the first time they truly have a realistic window to cash out their profits in an orderly, low-impact manner.

Whether from a wealth of market anecdotes or on-chain data, there is ample evidence to suggest that some long-term dormant holders are utilizing this window to reduce their exposure.

Earlier this year, Galaxy Digital assisted a "Satoshi-era" investor in selling 80,000 BTC. This transaction accounted for approximately 0.38% of the total Bitcoin supply and all came from a single entity.

This level of volume is enough to exert significant downward pressure on the price in any market environment.

Bitcoin's on-chain metrics also show a similar trend. Since 2025, some of the largest and longest-held addresses—those holding between 1,000 and 100,000 BTC—have overall remained in a net selling state. These addresses collectively held about 6.9 million BTC at the beginning of the year, close to a third of the total Bitcoin circulation, and have been continuously releasing chips into the market throughout the year.

Specifically, addresses in the 1,000–10,000 BTC range have seen a cumulative net outflow of 417,300 BTC (-9% YTD) since the beginning of the year, while addresses in the 10,000–100,000 BTC range have also experienced an additional 51,700 BTC net outflow (-2% YTD).

As Bitcoin becomes increasingly institutionalized and more and more transactions and fund flows move to off-chain channels, the informational value carried by on-chain data itself will gradually decrease. Nevertheless, by examining such on-chain data in conjunction with market instances like the "Satoshi-era investor selling BTC," there is still ample reason to conclude that in 2025, especially in the latter half of the year, early large-scale holders are overall in a net selling state.

This round of supply release coincides with a noticeable slowdown in the core buying pressure that has driven BTC's price up over the past two years. Institutional Demand Adjustment Trades' (DAT) inflows saw a significant drop in October, marking the first time since 2025 that DAT's monthly net inflow was less than $1 billion. At the same time, spot Bitcoin ETFs, which had been net buyers all year, turned into net sellers from October.

When these two major sources of stable demand both show signs of weakness in a short period, the market must face concentrated selling pressure from early large holders while dealing with a weakened buying side. The combination of these two forces naturally exerts significant pressure on the price.

So, is this cause for concern? Has Bitcoin's "monetization" been debunked due to its recent underperformance?

In our view, the answer is no. As the old saying goes: "In times of uncertainty, lengthen your time horizon." Based solely on about three months of weakness, it is difficult to definitively reject BTC's long-term thesis. Historically, BTC has experienced longer periods of underperformance, only to not only bounce back but also achieve new highs against both the dollar and gold. The current underperformance is indeed a setback, but we do not see it as a structural issue.

Looking ahead to 2026, the situation becomes even more complex. As BTC is increasingly seen as a macro asset, the importance of traditional analytical frameworks (such as the "four-year cycle") is diminishing. BTC's performance will be shaped more by macro variables, so the truly key questions become:

Will central banks continue to accumulate gold?

Will AI-driven stock market trends continue to accelerate?

Will Trump fire Powell?

If so, will Trump push the new Fed chair to start buying BTC?

These variables are extremely difficult to predict, and we do not claim to have definitive answers.

But what we are confident in is BTC's long-term monetary trajectory. Over many years, even decades, we expect BTC to continue to appreciate in monetary terms—whether against the dollar or against gold. Ultimately, this judgment can be simplified to one question: "Is cryptomoney a superior form of currency?"

If the answer is yes, then BTC's long-term direction becomes self-evident.

Beyond BTC: How Should L1 Be Viewed?

BTC has clearly established its position as the leading cryptomoney, but it is not the only crypto asset with a monetary premium. The valuations of some Layer 1 (L1) tokens also reflect a certain degree of monetary attribute premium or at least include expectations of future potential for a monetary premium.

Currently, the total market capitalization of the crypto market is about $3.26 trillion. Of this, BTC accounts for about $1.80 trillion; in the remaining $1.45 trillion, about $0.83 trillion is concentrated in various alternative L1 tokens. Overall, about $2.63 trillion, or about 81% of the crypto market capital, is allocated to assets that the market already considers as money, or believes may receive a monetary premium in the future.

Therefore, whether you are a trader, investor, allocator, or builder, understanding how the market grants or retracts a currency's premium is crucial. In the crypto industry, few factors are more influential on an asset's valuation level than whether the market is willing to perceive a particular asset as "money." It is for this very reason that predicting where future currency premiums will flow is arguably the most important single variable in asset portfolio construction within this industry.

As mentioned earlier, we anticipate that in the coming years, BTC will continue to capture market share from gold and other non-sovereign store-of-value assets. But a question arises: Where will L1 stand in all of this?

Will the rising tide lift all boats, or as BTC "fills the gap" with gold, will some of the currency premium be drawn away from other L1s?

First and foremost, it is necessary to see where L1 currently stands in terms of valuation. The top four ranked L1s by market capitalization are ETH ($3,611.5 billion), XRP ($1,301.1 billion), BNB ($1,206.4 billion), and SOL ($746.8 billion), with a total market cap of $6,865.8 billion, representing approximately 83% of the entire alternative L1 sector.

Beyond the top four, there is a clear gap in valuation (e.g., TRX with a market cap of approximately $266.7 billion), but the overall scale is still significant. Even the 15th ranked L1 by market cap — AVAX, has a valuation exceeding $50 billion.

It is important to emphasize that L1's market cap is not equivalent to its implied currency premium. The current mainstream L1 valuation logic can primarily be categorized into three types:
(i) Monetary Premium,
(ii) Real Economic Value (REV), and
(iii) Demand for Economic Security.

Therefore, a project's market cap is not only derived from the market seeing it as "money" but is the result of a multiple-value logic overlay.

Despite the presence of various competing valuation frameworks, the market is increasingly pricing L1 from a perspective of "monetary premium" rather than "revenue-driven." Over the past few years, the overall price-to-sales ratio (P/S) of all L1s with a market cap over $1 billion has slowly increased from approximately 200x to 400x. However, this surface number is somewhat misleading as it includes TRON and Hyperliquid.

In the past 30 days, TRX and HYPE contributed 51% of the sample's revenue, yet their combined market capitalization accounted for only 4%. These two significantly dragged down the overall P/S level.

Once these two outliers are removed, the true picture becomes very clear: while revenue continues to decline, the valuation of L1 keeps rising. The adjusted P/S ratio shows a continuously upward trend:

November 30, 2021: 40x

November 30, 2022: 212x

November 30, 2023: 137x

November 30, 2024: 205x

November 30, 2025: 536x

From the perspective of REV (Real Economic Value), one possible explanation is that the market is pricing in future revenue growth expectations in advance. However, this explanation is difficult to support under fundamental scrutiny. Using the same set of L1 as the sample (continuing to exclude TRON and Hyperliquid), their revenue has seen a decline in almost every year, with only one year as an exception:

2021: $123.3 billion

2022: $48.9 billion (a 60% YoY decline)

2023: $27.2 billion (a 44% YoY decline)

2024: $35.5 billion (a 31% YoY growth)

2025: $17.0 billion (annualized, a 52% YoY decline)

In our view, the simplest and most direct explanation is that these valuations are primarily driven by monetary premium, rather than current or expected revenue levels.

Further examination of SOL's outperformance reveals that its price appreciation may even be lower than the growth rate of its ecosystem's fundamentals. During the same period in which SOL outperformed BTC by 87%, Solana's fundamentals experienced explosive growth: DeFi TVL increased by 2,988%, fees grew by 1,983%, and DEX trading volume surged by 3,301%. By any reasonable measure, since December 1, 2022, the size of the Solana ecosystem has grown between 20 to 30 times.

However, as the core asset that underpins and reflects this growth, SOL has only outperformed BTC by a mere 87%.

Please reread that sentence.

In order for an L1 to generate meaningful excess returns over BTC, the ecosystem of the L1 not only needs to grow by 200%–300%; it needs to grow by 2,000%–3,000% to deliver high double-digit relative outperformance.

Based on all the above, we believe that: despite L1 valuations still being premised on the expectation of "future potential currency premium," market confidence in these expectations is quietly eroding. At the same time, the market has not wavered in its belief in the currency premium of BTC; in fact, one could argue that BTC's lead is widening.

Furthermore, while technically cryptomoney does not need transaction fees or revenue to support its valuation, these metrics are crucial for L1. Unlike BTC, the narrative of L1 heavily relies on its ecosystem development—applications, users, throughput, and economic activity—to "support" the token value.
However, if an L1's ecosystem usage sees a year-over-year decline and is reflected in a decrease in transaction fees and revenue, then the token loses its unique competitive advantage over BTC. In the absence of real economic growth, the narratives of these L1 cryptomonies will become increasingly hard for the market to accept.

Looking ahead, we do not believe this trend will reverse course in 2026 or beyond. With very few potential exceptions, we anticipate that alternative L1s will continue to cede market share to BTC. Their valuations are primarily driven by expectations of future currency premiums, and as the market gradually realizes that BTC is the most compelling candidate for cryptomoney among all assets, these valuations will continue to be compressed.

Although Bitcoin will face challenges in the coming years, these issues are either too distant or rely too heavily on unknown variables to provide support for the currency premium of other L1s at present. For L1s, the burden of proof has shifted: when compared to BTC, their narratives are no longer sufficiently persuasive, nor can they rely on the overall market sentiment rally to endorse their valuations in the long term.

Counterpoint: Why L1s May Still Compete Against BTC?

While we do not expect L1s to outpace BTC in the short term, assuming that their currency premium will inevitably converge to zero is also a misjudgment. The market is unlikely to assign multibillion-dollar valuations to assets without underlying logic; the fact that these valuations can persist indicates that investors believe that certain L1s may secure a lasting position in the broader cryptomoney ecosystem.

In other words, although BTC has clearly established its position as the dominant cryptocurrency asset, if Bitcoin fails to address several structural challenges in the longer term, some Layer 1s may still be able to carve out their own long-term monetary niches.

Quantum Threat

The most pressing potential threat to BTC's monetary status is the so-called "Quantum Threat." If quantum computers advance to a sufficient level of power, they could potentially break the elliptic curve digital signature algorithm (ECDSA) used by Bitcoin, allowing attackers to derive private keys from public keys. In theory, this would jeopardize all addresses whose public keys have been exposed on the chain, including reused addresses and old UTXOs generated before best practices were widely adopted.

According to Nic Carter's estimate, approximately 4.8 million BTC (about 23% of the total supply) is held in such exposed addresses, theoretically vulnerable to a quantum attack. Among them, about 1.7 million BTC (8% of the total supply) is located in early p2pk addresses, which are almost certainly "lost coins"—belonging to holders who are deceased, inactive, or no longer in control of the private keys. This subset of assets represents the current most challenging and unresolved issue.

If quantum computing does pose a real risk, Bitcoin must introduce quantum-resistant signature schemes. Without completing this transformation, BTC's monetary value would face a collapse, even turning the classic saying on its head: "Having the keys may not mean you have the coins." Therefore, we believe the Bitcoin network will inevitably upgrade to address the quantum threat.

The real challenge lies not in the upgrade itself but in how to deal with these "lost coins." Even with the introduction of new quantum-resistant address formats, these coins are likely to remain unmoved indefinitely, remaining in a vulnerable state in the long term. Currently, the most commonly discussed paths are two:

Do Nothing: Eventually, any entity with quantum capabilities could seize these coins, reintroducing up to 8% of the supply back into the market, likely falling into the hands of non-original holders. This would almost certainly depress the BTC price and weaken market confidence in its monetary properties.

Directly Destroying these Coins: After a certain predetermined block height, make these vulnerable coins unspendable, effectively permanently removing them from the supply. However, this solution also involves significant trade-offs—it violates Bitcoin's long-standing anti-censorship principle and may set a dangerous precedent: coins can be "voted" out of existence.

Fortunately, quantum computing is unlikely to pose a real threat to Bitcoin in the short term. Despite significant variations in predictions, even the most aggressive estimates typically place the earliest possible risk window around 2030. Based on this timeline, we do not anticipate substantial progress on the quantum issue in 2026. This remains a long-term governance issue rather than an imminent engineering challenge.

The longer-term trajectory is even harder to assess. The biggest unresolved issue is: how will the network eventually deal with dormant coins that cannot be migrated to quantum-resistant address formats? We cannot be sure which path Bitcoin will choose, but we are confident that the network will ultimately make a decision that is advantageous to maintaining and maximizing the value of BTC.

These two main approaches can actually be seen as serving this same goal: the former maintains censorship resistance but at the cost of introducing potential new supply; the latter sacrifices some censorship resistance narrative but avoids BTC falling into the hands of illicit actors.

Whichever path is ultimately chosen, the quantum issue represents a real long-term governance challenge. If quantum computing becomes a real threat and Bitcoin fails to undergo an upgrade, the monetary status of BTC will cease to exist; and once this happens, alternative cryptomonies with a stronger anti-quantum path could take over the currency premium that BTC once enjoyed.

Lack of Programmability

Another structural limitation of the Bitcoin network is its lack of general programmability. Bitcoin deliberately opted for a non-Turing complete design, with its script language being strictly limited in functionality, thereby constraining the complexity of on-chain transaction logic.
Unlike other ecosystems, where smart contracts can natively validate and execute complex signature conditions, Bitcoin currently cannot directly verify external messages and it is difficult to achieve low-trust cross-chain collaboration without relying on off-chain infrastructure.

For this reason, a whole class of applications such as DEXs, on-chain derivatives, privacy tools, etc., are almost impossible to build natively on the Bitcoin L1.

Although some supporters argue that this design helps reduce the attack surface and maintains the simplicity of Bitcoin as a currency, it is undeniable that a considerable portion of BTC holders hope to enter a programmable environment. As of the writing of this article, 370,300 BTC (approximately $33.64 billion) have been bridged to other networks. Among them, 365,000 BTC (about 99% of all cross-chain BTC) rely on custodial schemes or introduce trust-based assumptions. In other words, in order to use BTC in a more expressive ecosystem, users are actually reintroducing the whole set of risks that Bitcoin was originally designed to eliminate.

Within the Bitcoin ecosystem, attempts to address this issue— including federated sidechains, early L2 solutions, and low-trust multi-sig mechanisms—have not substantially reduced reliance on critical trust assumptions. Users do indeed want to deploy BTC in a more programmable environment, but in the absence of a truly trustless cross-chain approach, they often have to settle for centralized custodial institutions.

As BTC's volume continues to grow and it increasingly behaves as a macro asset, the demand for "how to efficiently use BTC" will only continue to rise. Whether it's using BTC as collateral, engaging in lending, exchanging it for other assets, or interacting with more expressive and programmable financial systems, users inherently want more than just holding the currency but to be able to use it.

However, under Bitcoin's current design, all these usage scenarios would introduce significant tail risk—because using BTC in a programmable or leveraged environment almost inevitably requires relinquishing asset custody to a centralized intermediary.

For these reasons, we believe that the Bitcoin network will ultimately need to support these use cases through a fork to enable them in a trustless, permissionless manner. We do not believe this means Bitcoin needs to transform into a smart contract platform; instead, a more reasonable path may be to introduce new opcodes, such as OP_CAT, to achieve trustless BTC cross-chain interoperability and composability.

OP_CAT is compelling because it only requires a relatively small consensus layer change to potentially unlock trustless movement of BTC across different chains. This is not about transforming Bitcoin into a smart contract platform but introducing a relatively simple opcode; when used in conjunction with Taproot and existing Script primitives, it can allow Bitcoin to directly execute and constrain spending conditions at the base layer.

This capability will enable trustless BTC cross-chain bridges without relying on custodians, federation mechanisms, or external sets of validators, thereby addressing the core risk of the current issue—these risks are precisely what have led to hundreds of thousands of BTC being wrapped in custodial assets today.

Unlike the threat of quantum, Bitcoin's lack of programmability does not pose a survival risk to its "moneyness." Still, it does limit the reachable market size for BTC as cryptomoney. The demand for a "programmable currency" is already evident: currently, over 370,000 BTC (approximately 1.76% of total supply) is locked in cross-chain environments, and the asset scale deployed within the DeFi ecosystem has exceeded $120 billion.

With the continued expansion of the crypto ecosystem and more financial activities moving on-chain, this demand will only continue to grow. However, the reality is that Bitcoin currently does not provide a trustless path for BTC to securely participate in the programmable ecosystem. If the market ultimately deems the associated risks unacceptable, then L1 assets with programmability such as ETH, SOL, and others will become the primary beneficiaries of this demand.

Security Budget

The final structural issue facing Bitcoin is its security budget. This topic has been discussed for over a decade, and while there is significant disagreement in the market about its severity, it has always been one of the most controversial issues surrounding Bitcoin's long-term monetary integrity.

Essentially, the security budget refers to the total compensation miners receive for maintaining network security, which is currently mainly composed of two parts: block rewards and transaction fees. As the block reward halves approximately every four years, Bitcoin will eventually have to rely primarily on transaction fees and eventually fully on transaction fees in the more distant future to incentivize miners to continue securing the network.

At one point, amid the surge in popularity of Ordinals and Runes, the market seemed to see a possibility: that relying solely on transaction fees might be enough to compensate miners and maintain network security. In April 2024, on-chain transaction fee revenue reached $281.4 million, marking the second-highest monthly level in history. However, just a year and a half later, transaction fee revenue experienced a steep decline. In fact, on-chain transaction fees in November 2025 amounted to only $4.87 million, hitting the lowest monthly level since December 2019.

Although the sharp drop in transaction fees is alarming, it does not necessarily pose an immediate risk. Bitcoin's block subsidy still provides a significant incentive for miners and will continue to do so for the next several decades. Even by 2050, the network will still be adding approximately 50 BTC per week, which remains a significant issuance for miners. As long as the block subsidy remains the primary source of miner revenue, network security is unlikely to be threatened.
However, the possibility of on-chain transaction fees completely replacing the block subsidy is becoming increasingly unlikely.

It should be noted that the discussion surrounding the security budget is not just a simple question of whether "fees can fully replace the subsidy." Fees do not need to be equivalent to the current subsidy level; they just need to be higher than the cost of launching a single credible attack. This cost itself is incalculable and may change significantly with advancements in mining technology and the evolution of the energy market.

If future mining costs decrease significantly, the minimum fee requirement will also decrease. This change could occur in various scenarios: in a mild scenario, ASICs' incremental improvements and lower-cost access to idle renewable energy sources will reduce miners' marginal costs; in an extreme scenario, breakthroughs in energy, such as controlled nuclear fusion commercialization or ultra-low-cost nuclear energy, could lead to a magnitude reduction in electricity prices, fundamentally altering the economic structure of maintaining hashing power.

Even if we acknowledge that there are too many variables to accurately calculate Bitcoin's security budget and determine what level of security is "needed," it is still necessary to consider a hypothetical scenario: that the miner reward will eventually not be sufficient to economically ensure the network's security. In such a scenario, the incentive mechanism that underpins Bitcoin's "trustless neutrality" would begin to weaken, and the security of the network would increasingly rely on social expectations rather than enforceable economic constraints.

One possibility is that certain participants—such as exchanges, custodians, nation-states, or large holders—may choose to engage in loss-mining to protect the assets they rely on. However, while this "defensive mining" may technically maintain network security, it could also undermine BTC's social consensus as a currency. If users begin to believe that BTC relies on the coordinated actions of a few large entities to maintain security, its monetary neutrality, and consequently its monetary premium, could come under pressure.

Another equally possible scenario is that no entity is willing to incur losses to maintain the network. In this scenario, Bitcoin could face the risk of a 51% attack. Although a 51% attack would not permanently destroy Bitcoin (PoW chains like Ethereum Classic and Monero have survived 51% attacks), it would undoubtedly raise serious questions about Bitcoin's security.

With so many uncertain factors shaping Bitcoin's long-term security budget, no one can provide a definitive answer to how the system will evolve decades from now. This uncertainty does not pose a tangible threat to BTC, but it does create a long tail risk that needs to be priced by the market. From this perspective, the monetary premium that some L1 assets retain can also be seen as a hedge against the extremely low probability event of "Bitcoin's long-term economic security being challenged."

The ETH Debate: Is It Cryptomoney?

Among all major crypto assets, none have sparked as long-standing and continuous debate as ETH. While BTC's position as the dominant cryptomoney is nearly unquestioned, ETH's role is far from settled.

Some see ETH as the only asset besides BTC with trustworthy non-sovereign currency attributes, while others view ETH more as a "business" with declining revenue, shrinking profit margins, and facing faster, cheaper L1 competition.

This debate seemed to reach a climax in the first half of this year. In March, XRP briefly surpassed ETH in fully diluted valuation (FDV) (it's worth noting that ETH has fully circulated supply, while XRP currently has only about 60% of its supply in circulation).

On March 16, the FDV of ETH was approximately $227.65 billion, while XRP's FDV reached $239.23 billion - a result that almost no one would have thought possible a year ago. Subsequently, on April 8, 2025, the ETH/BTC exchange rate dropped below 0.02, marking the first time since February 2020. In other words, all the excess performance of ETH relative to BTC in the previous cycle has been completely retraced.

By that moment, the market sentiment surrounding ETH had plummeted to the lowest levels in years.

What's worse, price performance is only part of the issue. As the competitive ecosystem continues to grow, Ethereum's share of L1 transaction fees has been steadily declining. Solana regained its footing in 2024, while Hyperliquid broke through in 2025, jointly compressing Ethereum's fee share to 17% - ranking only fourth among all L1s, a stark contrast to its former first-place position a year prior, showcasing a cliff-like drop.

Fees are not the sole measure of everything, but they are undoubtedly a clear signal of where economic activity is shifting. Currently, Ethereum is facing the most intense competitive environment in its development history.

However, history has repeatedly shown that the most significant reversals in the crypto market often emerge at the most pessimistic moments. When ETH is widely seen as a "failed asset" and abandoned by the market, many of its perceived "issues" have actually been fully priced into the market already.

In May 2025, signs of market over-pessimism first emerged. Since then, both the ETH/BTC ratio and ETH's USD price have notably reversed. The ETH/BTC ratio rose from a low of 0.017 in April to 0.042 in August, a 139% increase; at the same time, ETH itself surged from $1,646 to $4,793 during the same period, a cumulative increase of 191%. This momentum peaked on August 24 when ETH hit a new all-time high, reaching $4,946.

Following this repricing cycle, the market gradually became aware that ETH's overall trajectory had shifted towards a renewed strength. Leadership adjustments within the Ethereum Foundation (discussed later in this document), along with the emergence of Digital Asset Treasuries centered around ETH, injected a level of certainty and confidence into the market that had been noticeably lacking over the past year.

Before this rebound, the divergence between BTC and ETH was particularly evident in their respective ETF markets. The launch of the spot ETH ETF in July 2024 saw very weak capital inflows initially. In the first six months, its cumulative net inflow was only $24.1 billion, which was quite lackluster compared to the record-breaking performance of the BTC spot ETF.

However, with ETH's recovery, concerns surrounding ETF fund flows completely reversed. Over the following year, the spot ETH ETF attracted a total of $97.2 billion, while the BTC ETF saw inflows of $217.8 billion during the same period. Considering that BTC's market cap is nearly five times that of ETH, the difference in their fund inflows was only 2.2 times greater, far below market expectations.

In other words, when adjusted for market capitalization, the demand for ETH's ETF was actually higher than that of BTC, marking a sharp turnaround from the previous narrative that "institutions have no substantial interest in ETH." At certain stages, ETH even outperformed BTC across the board.

From May 26 to August 25, the fund inflow into the ETH ETF reached $10.2 billion, surpassing BTC's $9.79 billion during the same period, marking the first clear period where institutional demand skewed towards ETH.

From the perspective of ETF issuers, BlackRock further solidified its dominant position in the ETF market. By the end of 2025, BlackRock held 3.7 million ETH, accounting for approximately 60% of the entire spot ETH ETF market. This number represented a 241% increase from the end of 2024, leading the annual growth rate among all issuers.

Overall, the spot ETH ETF collectively held 6.2 million ETH by the end of the year, representing about 5% of the total ETH supply.

Behind ETH's strong rebound, the most critical change was the emergence of Digital Asset Treasuries (DATs) centered around ETH. DATs brought a previously unseen stable and repeatable source of demand to ETH, providing an anchoring effect on asset prices in a way that narrative or speculative capital could not achieve. If ETH's price movement marked a surface inflection point, it was the continued accumulation of DATs that underpinned a deep structural shift that brought about this inflection.

DAT has had a significant impact on the ETH price. Throughout the whole year of 2025, DAT collectively increased its ETH holdings by about 4.8 million ETH, equivalent to 4% of the total ETH supply. Among them, the most aggressive ETH DAT is Bitmine (BMNR) under Tom Lee's leadership—a company that was originally engaged in Bitcoin mining and started shifting its treasury and capital structure to ETH in July 2025. During the period from July to November, Bitmine accumulated 3.63 million ETH, accounting for 75% of all DAT holdings, becoming the undisputed leader in the field.

Despite the powerful reversal of ETH, this rally eventually cooled off. By November 30, ETH had dropped from its August high to $2,991, not only significantly below the high point of this rally but also lower than the previous cycle's all-time high of $4,878. Compared to April, ETH's overall situation had improved significantly, but this rebound did not eliminate the structural concerns that initially sparked the bearish thesis. If there was any change, it was that the debate surrounding ETH had become more intense than ever before.

On the supportive side, ETH is displaying many similarities to BTC that were present during Bitcoin's establishment as a reserve asset: ETF fund inflows are no longer sluggish; digital asset treasuries have become a source of sustained demand; and, more importantly, an increasing number of market participants are starting to view ETH as a special asset distinct from other L1 tokens—in the eyes of some, it has already been incorporated into the same monetary framework as BTC.

However, the core concerns that plagued ETH at the beginning of the year still persist. Ethereum's fundamentals have not been fully restored; its share of L1 transaction fees continues to be squeezed by strong competitors like Solana and Hyperliquid; on-chain activity at the base layer remains significantly below the peak of the previous cycle. Meanwhile, despite a strong rebound in ETH, BTC has firmly stayed above its all-time high, while ETH has yet to reclaim its former peak. Even in the months when ETH performed the strongest, a considerable portion of holders viewed the price increase as an opportunity to exit for liquidity rather than as a confirmation of the long-term monetary narrative.

The core issue of this debate lies not in whether Ethereum is "valuable," but in how: How does the asset ETH derive value from the Ethereum network?

In the previous cycle, the market generally assumed that ETH would directly capture value from Ethereum's success. This was a key part of the "Ultrasound Money" narrative: as Ethereum became more useful, the network would burn a significant amount of ETH, turning it into a deflationary value carrier.

Today, we can fairly confidently say that things will not unfold as previously envisioned. Ethereum's fee revenue has plummeted significantly, with no clear signs of recovery; and its current most important source of growth — RWAs and institutional participation — mainly uses the US dollar as the base currency, rather than ETH.

In this context, ETH's value will depend on its ability to achieve "indirect" value capture from Ethereum's success. However, compared to direct, mechanistic value capture, the uncertainty of indirect value capture is much greater. It relies on an expectation: as Ethereum's importance at the system level continues to rise, more users and capital will choose to view ETH as cryptomoney and a store of value.

However, unlike direct value capture mechanisms, this process has no guarantees. It entirely depends on social preferences and collective beliefs — which is not a flaw in itself (a whole section previously explained that BTC achieved value accumulation in exactly this way), but it also means that ETH's price performance is no longer directly tied to Ethereum's economic activity in a deterministic manner.

All these factors will ultimately bring the debate around ETH back to its core tension. ETH may indeed be accumulating some form of monetary premium, but this premium always remains behind Bitcoin and is subservient to Bitcoin. Once again, the market sees ETH as a leveraged expression of Bitcoin's monetary narrative, rather than an independent monetary asset.

In 2025, the 90-day rolling correlation between ETH and BTC mostly stays in the 0.7 to 0.9 range, while its rolling beta value surges to multi-year highs, sometimes exceeding 1.8. This means that ETH's volatility has significantly surpassed that of BTC, but its price trend still heavily relies on BTC.

This is a subtle yet extremely important distinction. Currently, the establishment of ETH's monetary correlation is because Bitcoin's monetary narrative remains strong. As long as the market continues to believe in Bitcoin as a non-sovereign store of value, some marginal participants will be willing to extrapolate this belief to ETH.

And if Bitcoin continues to strengthen in 2026, ETH will also have a relatively clear path to further narrow the gap with BTC.

The Ethereum DAT is still in the early stages of its lifecycle, and so far, its ETH accumulation has been mainly achieved through equity financing. However, in the new crypto bull market, these entities may well explore more capital structure tools, replicating the path taken when expanding BTC exposure through strategies, including convertible bonds and preferred shares.

For example, a DAT like BitMine could issue low-interest convertible debt along with higher-yielding preferred capital, using the raised funds to directly purchase ETH. These ETH holdings would then be staked to generate ongoing returns. Under reasonable assumptions, staking income could partially offset fixed interest and dividend expenses, allowing the treasury to both continue accumulating ETH in favorable market conditions and increase balance sheet leverage.

This "second life" of the Ethereum DAT is expected to become another force in maintaining ETH's high beta relative to BTC by 2026, assuming a broader BTC bull market restart.

From a fundamental perspective, the market still sees ETH's monetary premium as dependent on BTC's existence. ETH has not yet become a currency asset with an independent macro foundation; it is more like a secondary beneficiary of BTC's currency consensus. The recent recovery of ETH reflects that a small fraction of marginal participants are starting to see ETH as an asset closer to BTC, rather than just a regular L1 token. However, even in a phase of relative strength, the market's belief in ETH still cannot escape the continued validity of the BTC narrative itself.

In short, ETH's monetary narrative is no longer shattered but far from settled. In the current market structure, considering ETH's high beta feature relative to BTC, as long as BTC's core logic continues to play out, ETH has significant upside potential; and structural demand from DATs and corporate treasuries does provide it with upward potential indeed. However, looking into the foreseeable future, ETH's currency trajectory still depends on BTC. Until ETH shows lower correlation and beta with BTC—which has never happened over a longer time horizon—ETH's premium will always operate in the shadow of BTC.

Zcash: A Hedge Against BTC?

Among all crypto assets outside of BTC and ETH, ZEC saw the most significant shift in currency perception in 2025. For years, ZEC has been outside the core layer of cryptomoney, perceived as a niche privacy coin rather than a true currency asset. However, as concerns about surveillance intensify and Bitcoin's institutionalization accelerates, privacy is once again seen as a core monetary attribute, no longer just a marginalized ideological preference.

Bitcoin has already demonstrated that a non-sovereign digital currency can operate on a global scale, but it has failed to retain the privacy attributes we are accustomed to when using physical cash. Every transaction is broadcasted onto a fully transparent public ledger, allowing anyone to track it using a block explorer. This creates an irony: a tool originally designed to weaken state control has inadvertently created a financial panopticon.

Zcash, through zero-knowledge cryptography, combines Bitcoin's monetary policy with the privacy features of physical cash. No other digital asset can provide such a battle-tested and deterministic privacy guarantee like Zcash's latest shielded pool. In our view, the market is reassessing ZEC's position relative to BTC based on this—seeing it as a form of cryptomoney with ideal properties and positioning ZEC as a hedge against the rise of surveillance states and the institutionalization of Bitcoin.

Year-to-date, ZEC has risen 666% against BTC, reaching a market cap of $7 billion and briefly surpassing XMR in terms of market value, becoming the most valuable privacy coin. This relative strength indicates that the market is pricing ZEC as a viable form of private cryptomoney alongside XMR.

Privacy on Bitcoin

Bitcoin is highly unlikely to adopt a structure similar to a "shielded pool," so the idea that Bitcoin will eventually absorb Zcash's value proposition is not valid. Bitcoin is known for its highly conservative culture, emphasizing reducing its attack surface and maintaining monetary integrity through ossification. Embedding privacy features at the protocol level would require adjustments to Bitcoin's core architecture, introducing risks such as inflation bugs that could compromise its monetary integrity. Zcash is willing to take on this risk because privacy is its core value proposition.

Implementing zero-knowledge cryptography at the base layer will also impact the blockchain's scalability: to prevent double-spending, nullifiers and hashed notes need to be introduced, leading to long-term concerns about "state bloat." Nullifiers will form a list that only grows, creating a resource cost for running nodes that increases over time. Requiring nodes to store a large and continually growing set of nullifiers will weaken Bitcoin's decentralization**, as the network's operational barrier for nodes will rise over time.

As mentioned earlier, prior to any Bitcoin L2 with a non-privacy-preserving soft fork (such as OP_CAT), it was not possible for any Bitcoin L2 to achieve Zcash-level privacy while inheriting Bitcoin security. The practical choices were only three:

Introduce a trusted intermediary (federation model);

Accept long and interactive withdrawal delays (BitVM model);

Delegate execution and security entirely to an independent system (Sovereign Rollup).

Until these conditions change, there is no practical path that both preserves Bitcoin security and achieves Zcash privacy. This is also where the value of ZEC as a privacy-centric cryptomoney lies.

Combatting CBDC Offset

The importance of privacy is further amplified by the arrival of Central Bank Digital Currencies (CBDCs). Half of the world's countries are already exploring or have launched CBDCs. CBDCs are programmable, meaning the issuing authority can not only track every transaction but also control how, when, and where funds are used. Funds can even be programmed to be used only at specific merchants or within specific geographical areas.

While this may sound like a dystopian fantasy, the weaponization of the financial system is not a mere conjecture but a reality that has already occurred:

Nigeria (2020): During the #EndSARS protests against police brutality, the Central Bank of Nigeria froze the bank accounts of several key protest organizers and feminist organizations, forcing the movement to rely on cryptocurrency to sustain its operations.

United States (2020–2025): Regulatory agencies and major banks, citing "reputational risk" rather than considerations of safety and soundness, have de-banked legally operating but politically unpopular industries. This trend has escalated to the point where the White House ordered a review; the Office of the Comptroller of the Currency (OCC) documented systematic restrictions in its 2025 de-banking study, ranging from the oil and gas, firearms, and adult content industries to the cryptocurrency industry.

Canada (2022): During the "Freedom Convoy" protests, the Canadian government invoked the Emergencies Act to freeze the bank and crypto accounts of protesters and small donors without a court order. The Royal Canadian Mounted Police even blacklisted 34 self-hosted crypto wallet addresses, instructing all regulated exchanges to cease providing services to them. This event illustrates that Western democratic nations are also willing to use the financial system to suppress political dissent.

In an era where a currency can be programmed to constrain individual behavior, ZEC provides a clear "exit option." However, the significance of Zcash goes beyond evading CBDCs; it is increasingly becoming a necessary tool to protect Bitcoin itself.

Countering Bitcoin's "Capture"

As influential advocates like Naval Ravikant and Balaji Srinivasan have pointed out, Zcash is an insurance policy for maintaining the financial freedom vision of Bitcoin.

Bitcoin is rapidly centralizing towards centralized entities. In aggregate, centralized exchanges (around 3 million BTC), ETFs (around 1.3 million BTC), and publicly traded companies (829,192 BTC) collectively hold about 5.1 million BTC, approximately 24% of the total supply, currently custodied by third parties.

This concentration means that about 24% of the total BTC supply is exposed to the risk of regulatory seizure, a scenario highly reminiscent of the conditions that facilitated the U.S. government's gold seizure in 1933. Back then, the U.S. issued Executive Order 6102, mandating that citizens surrender gold over $100 to the Federal Reserve, redeemable at $20.67 per troy ounce in fiat. The enforcement of this policy did not rely on force but rather on the "chokepoint" nodes of the banking system.

For Bitcoin, the enforcement mechanism is nearly identical. Regulators do not need to possess your private keys to seize this 24% supply; they only need legal jurisdiction over custodians. In this scenario, the government merely has to issue enforcement orders to institutions like BlackRock and Coinbase. Due to their legal compliance obligations, these companies would be compelled to freeze and turn over the BTC they custody. Overnight, nearly a quarter of the Bitcoin supply could be de facto "nationalized" without the need to alter any code. While this is an edge case, it cannot be entirely ruled out.

Furthermore, the transparency of the blockchain means that self-custody alone is no longer a sufficient defense. Any BTC withdrawn from a KYC exchange or brokerage account could face the risk of being clawed back because its "paper trail" can eventually lead the government to the asset's final destination.

Bitcoin holders can sever this custodial chain by exchanging for Zcash, achieving an "air gap" between assets and monitoring systems. Once funds enter the privacy pool (shielded pool), their final receiving address will appear as a cryptographic "black hole" to external observers. Regulators can track the movement of funds exiting the Bitcoin network but cannot see their ultimate destination, rendering these assets invisible to the national surveillance apparatus.
Of course, repatriating assets to the domestic banking system remains a real bottleneck, but the assets themselves possess censorship resistance and are challenging to actively trace. It is important to emphasize that the strength of this anonymity depends entirely on operational security: address reuse or acquiring assets through a KYC exchange will leave a permanent linkage trace before entering the privacy pool.

The Path to Product-Market Fit

The demand for privacy-centric cryptocurrencies has always been present; the challenge for Zcash in the past was that it failed to meet users where they are. Over the years, the protocol has been plagued by high memory consumption, long proof generation times, and complex, heavyweight desktop configurations, making privacy transactions slow and high-barrier for most users.

However, recently, a series of breakthroughs at the infrastructure level are systematically dismantling these barriers, paving the way for Zcash's user-level adoption.

The Sapling upgrade reduced memory requirements by 97% (to around 40 MB) and shortened the zero-knowledge proof generation time by 81% (to around 7 seconds), paving the way for privacy transactions on mobile devices.

While Sapling made significant progress in transaction speed, in the privacy community, the trusted setup has always been a lingering concern. With the introduction of Halo 2, Orchard completely eliminates Zcash's reliance on the trusted setup, achieving full trustlessness in cryptographic terms. At the same time, Orchard also introduced Unified Addresses, integrating the transparent pool and the shielded pool into the same receiving address, eliminating the need for users to manually switch between different address types.

These architectural improvements are ultimately reflected in the mobile wallet Zashi, launched by the Electric Coin Company in March 2024. Leveraging the abstract design of Unified Addresses, Zashi simplifies the previously complex privacy transaction process to a few clicks on the screen, making "privacy" the default user experience (UX) for the first time, rather than an additional burden.

After UX barriers are removed, the distribution and acquisition path remain a significant issue. Previously, users still had to rely on centralized exchanges (CEX) to deposit or withdraw ZEC to wallets. The integration of NEAR Intents effectively removes this dependency. Through NEAR Intents, Zashi users can directly exchange BTC, ETH, and other supported assets for shielded ZEC, with the entire process requiring no interaction with any CEX. Additionally, NEAR Intents support users using shielded ZEC as a funding source to make payments to any address on 20 blockchains with any supported asset.

These measures work together to allow Zcash to bypass key historical friction points, directly plug into global liquidity, and truly meet the market where it is.

Future Outlook

Since 2019, ZEC has exhibited a clear downward trend in rolling correlation with BTC, dropping from a peak of 0.90 to a recent low of 0.24. At the same time, ZEC's relative rolling beta to BTC has reached a historic high, indicating that as the correlation between the two decreases, ZEC is amplifying BTC's price movements. This divergence suggests that the market is starting to assign a unique premium to Zcash's privacy features.

Looking ahead, we expect ZEC's performance to be primarily driven by this "privacy premium"—that is, the value the market assigns to financial anonymity in an environment of increasing surveillance and the growing tooling of the global financial system.

We believe the likelihood of ZEC surpassing BTC is extremely low. Bitcoin has established itself as the most reliable form of cryptomoney due to its transparent supply mechanism and unquestionable auditability. In contrast, Zcash as a privacy coin inevitably comes with inherent trade-offs. To achieve privacy, Zcash encrypts its ledger, which, while sacrificing auditability, introduces a theoretical inflation bug risk—namely, supply inflation that may occur within the privacy pool and is challenging to detect promptly, a problem that Bitcoin's transparent ledger explicitly avoids.

Nevertheless, ZEC can still carve out its own niche position independent of BTC. They are not addressing the same problem but correspond to different use cases in the cryptomoney system:
BTC is positioned as a robust cryptomoney emphasizing transparency and security;
ZEC is positioned as a private cryptomoney emphasizing confidentiality and financial privacy.

In this sense, ZEC's success is not predicated on displacing BTC but on complementing the attributes deliberately not provided by BTC.

2026: Emergence of Application Money

We expect "Application Money" to continue to gain traction in 2026. Application Money refers to a currency asset designed specifically for a particular application scenario, aiming not to function as a universal currency like BTC or L1 tokens but to serve the internal economic system of a single application.

To understand why application-specific currencies are becoming feasible in a cryptographic environment, we need to first revisit two fundamental principles about "money":

The value of money comes from the goods and services it can be exchanged for;

When the cost of switching between different currency systems is high, participants naturally converge on a common monetary standard.

Historically, money was initially created as a tool to store value created through economic activity. As most goods and services are perishable or time-bound, money allows people to preserve purchasing power and facilitate exchanges in the future. It is essential to emphasize that money itself does not inherently possess value; its value depends on what it can buy in a specific economic context.

As economies expand and interconnect, multiple currency systems often follow a power-law distribution, ultimately converging into a single dominant standard. This convergence stems from the high friction costs associated with switching between different currency systems, including slow settlement, lack of liquidity, information asymmetry, intermediary dependence, and the physical difficulty of cross-border fund transfers. Under these conditions, the network effects of money continue to strengthen the most widely accepted currency, making it increasingly inefficient to maintain an independent monetary standard.

The cryptographic system fundamentally changes this dynamic. It significantly reduces the aforementioned frictions, enabling the possibility of smaller, application-specific currency systems in a low-friction environment. Users can seamlessly move in and out of different currency systems without incurring high costs. Therefore, applications no longer need to rely on a universal currency system but can construct their own application-level monetary systems, internalizing the value generated by their internal economic activities and retaining it within the system.

By 2025, several viable proof-of-concepts have been provided for this application-level monetary system, with the most representative cases being Virtuals and Zora.

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