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

Editor's Note: Against the backdrop of a somber mood in 2025 but accelerated institutional entry, Messari's release of "The Theses 2026" report revolves around seven core pillars of 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 critical impact in the coming years.

This article is an excerpt from "The Theses 2026" focusing on the core content of cryptomoney, highlighting Messari's judgment logic and controversial points regarding asset money 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 are 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 lurking in Telegram and Discord groups for more than 12 hours a day, you probably miss the good old days. One thing is for sure: 2025 once again proved that the volatility of this industry is as intense as the price charts we stare at every day.

Looking back at this year:

At the beginning of the year, we witnessed what retrospectively seems to be the most exciting token release in history: TRUMP. Although the excitement quickly waned, this release became an important stress test, validating the extent to which on-chain infrastructure has developed.

The world's largest government officially declared Bitcoin as a unique store of value asset, including it in its official reserves, and 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 peak, but the result made Ethereum even stronger. Today, Ethereum is consolidating its position as a core hub for institutional adoption.

Digital Asset Treasuries (DAT) became the buzzword of the year, as their collective buying pressure pushed the entire asset class to historic highs.

The first milestone cryptocurrency legislation in the United States, known as the GENIUS Act, has been officially signed, laying the groundwork for what the U.S. Treasury Secretary anticipates could be a stablecoin market expanding to trillions of dollars in the future.

On October 10, the largest-ever cryptocurrency deleveraging event took place, with many assets plummeting over 50% in a matter of minutes, and some assets even momentarily trading at zero (literally zero). Subsequently, cryptocurrency assets significantly underperformed compared to asset classes with stronger historical correlations, such as gold, silver, and stocks.

The enterprises of tomorrow are being born on-chain. By 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 mainstream cultural discourse.

Amidst all of this, Messari Research has been by your side to grasp the industry's context. We have released two major annual flagship research reports on core trends—Stablecoins and AI. Our forward-looking assessment of Hyperliquid in early 2024 has been validated, and we have continued to track its rise throughout the year. As the industry begins to rethink how to price cryptocurrency assets, we have released valuation frameworks covering multiple areas, including L1, public chains, DePIN, lending protocols, launchpads, AI hedge funds, and other more granular asset types.

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 blockchain, we have maintained a sufficiently agile research pace. Messari's Protocol Services team has partnered with over 150 protocols to drive industry progress 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 significant impact in the coming years.

Following the seven core sections, we have retained popular content such as Messari Analyst Picks and the Messari Awards. New this year is Alumni Theses, which feature in-depth articles from several Messari alumni who are at the forefront of driving the industry forward. Lastly, we are offering a sneak peek of a new analysis framework in development: the Disruption Factor.

Cryptomoney as the Bedrock of the Industry: Core Theme

Authors: AJC, Drexel Bakker, Youssef Haidar

Bitcoin has become thoroughly distinct from other crypto assets and is undoubtedly the most dominant form of cryptomoney 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, and BTC's "monetary narrative" is expected to remain robust in the foreseeable future.

L1 valuations are increasingly detached from their fundamentals. L1 revenues have seen a significant year-on-year decline, with their valuations increasingly built on the assumption of a "monetary premium." Except for a few exceptions, we expect most L1s to underperform BTC.

ETH remains the most contentious asset. Concerns regarding value capture have not fully dissipated, but the market performance in the latter half of 2025 suggests that the market is willing to view it as a cryptomoney similar to BTC. If the market returns to a bull phase in 2026, Ethereum ETH may experience a "second life."

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

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

Introduction

As we kick off this year's The Theses, we focus on the most fundamental and critical element in the crypto revolution: money. This is no coincidence.

When we began planning this year's Theses in the summer, we had not anticipated the market sentiment swinging so sharply to 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 been only a few instances in history where the index touched or fell below 10, which occurred during:

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

The Great Margin Call Cascade of May 2021

The COVID-19 Market Crash of March 2020

Several Phases of the Bear Market in 2018–2019

In the entire development history of the crypto industry, moments of such extreme market sentiment are rare, and they have almost always occurred during periods when the industry was truly facing self-implosion and its future prospects were severely questioned. However, today's situation is clearly different.

No major exchanges have absconded with user funds; no blatant Ponzi schemes have been hyped to multi-billion-dollar valuations; and the overall market cap has not plummeted below the previous cycle's peak.

Instead, crypto assets are being increasingly recognized and integrated by the highest echelons of the global institutional framework. The U.S. SEC has publicly stated its expectation that within two years, all U.S. financial markets will be on-chain; stablecoin supplies have reached historic highs; and the adoption narrative that we have been reiterating for the past decade is finally being realized.

Yet, despite all this, the sentiment in the crypto industry has hardly ever been this dismal. Almost every week or two, there's a post going viral on X: someone is convinced they've wasted their life in the crypto industry; others assert that everything built in this industry will eventually be replicated, co-opted, captured by incumbent institutions.

It is precisely amidst this continuing collapse of sentiment and the simultaneous rise of institutional adoption that it has now become the best time to reexamine the crypto industry from first principles. And the core principle that initially gave birth to this chaotic yet captivating industry is actually extremely simple: to construct a currency system that is superior and more alternative to the existing fiat system.

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

The reason why these starting points are crucial is that at some imperceptible stage, many have already forgotten what problem cryptocurrency was originally created to solve.

Bitcoin's emergence was not to provide banks with a more efficient settlement channel; it wasn't to save a few basis points in forex transfers; and certainly not to power a never-ending, continuously issued speculative token "slot machine."

Its birth was essentially a response to a malfunctioning monetary system.

Therefore, if we are to truly understand the position of the crypto industry today, 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 almost no substantive choice in "what currency to use." Under today's fiat-based global monetary system, individuals are effectively bound by their national currency and central bank decisions.

Nations dictate what currency you earn in, what currency you save in, and what currency you pay taxes in. Whether this currency is subject to inflation, devaluation, or mismanagement through systemic means, you can only passively endure.

Furthermore, this situation is not different due to political or economic system variances—whether it's a free market, an authoritarian regime, or a developing economy, almost all exhibit a similar pattern: government debt is a one-way street.

Over the past quarter-century, government debt relative to GDP in the world's major economies has generally surged. As the two largest economies globally, the U.S. and China have seen their general government debt as a percentage of GDP increase by 127% and 289%, respectively. Regardless of political systems, shifting growth patterns, the persistent expansion of government debt has become a structural feature of the global financial system.

When the growth rate of debt consistently exceeds 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 accomplishing a transfer of wealth from individual savers to the state.

Cryptomoney provides an alternative for this system by separating the state from the currency. Throughout history, when inflation, capital controls, or stricter regulations align with their interests, governments often proactively adjust monetary rules. Cryptomoney, on the other hand, returns monetary governance to a decentralized network rather than centralizing it in a single authoritative entity.

Throughout this process, the "currency choice" reemerges: savers can choose a currency asset that better aligns with their values, needs, and preferences without being forced to remain tied to 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 that, as its value foundation stems from a set of attributes that have never coexisted before.

One key cornerstone of cryptomoney's value is its predictable, rule-based monetary policy. These rules are not derived from any institutional commitment, but rather from inherent properties of the software operated by thousands of independent participants. Any rule changes require broad consensus rather than the discretionary power of a few, making arbitrary and sudden monetary policy adjustments extremely difficult.

In stark contrast to the fiat currency system, where currency supply often passively expands under political or economic pressures, the operational rules of cryptomoney are open, predictable, and enforced through a consensus mechanism, making it impossible to be quietly altered "behind closed doors."

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 being centrally held in custodial vaults, reintroducing trust-based risks.

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

Cryptomoney enables direct ownership, allowing individuals to autonomously hold and safeguard their assets without relying on any custodial institution. As various financial restrictions such as bank withdrawal limits and capital controls become increasingly common globally, the importance of this ability continues to rise.

Finally, cryptomoney is designed for a globalized, digital world. It can move across borders instantly in any amount without requiring any institutional permission. This aspect gives it a significant advantage over gold – gold is difficult to divide, verify, and transport, especially in cross-border scenarios.

In contrast, 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 face, 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 allows value to flow freely on a global scale. In a system where government debt continues to rise, 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 natural to start with it. Nearly seventeen years later, BTC remains the largest and most well-known asset in the entire industry.

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.

During the early stages of this market cycle, BTC's approximately $318 billion market cap was not enough to rank it among the world's largest assets; however, its market cap has now increased to $1.81 trillion, making it the ninth largest asset globally. The market has not only rewarded BTC's monetary properties with a higher price but has also placed it in the top tier of the global asset system.

Even more indicative is the change in BTC's performance relative to the entire crypto market. Historically, during bull markets in crypto, as funds migrate along the risk curve towards higher-risk assets, Bitcoin's dominance (Bitcoin Dominance, BTC.D) usually decreases; however, in this current Bitcoin-led bull market, this trend 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 Bitcoin 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 (up 888%, compared to BTC's 429% increase).

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

This phenomenon is particularly notable due to BTC's own size. As an asset with a market value in the trillion-dollar range, its price movement theoretically requires the mobilization of the most capital, yet it has still outperformed almost all mainstream tokens. This indicates that there is real, sustained buying demand for BTC in the market; while most other assets are more like "β," only passively rising when BTC drives the overall market.

One 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 Bitcoin spot ETF.

The market's demand for such products is so strong that it is almost reaching a point where supply cannot keep up with it. The iShares Bitcoin Trust (IBIT) launched by BlackRock has broken ETF historical records multiple times and is hailed as the "most successful ETF issuance in history."

Only 341 days after its listing, the asset under management (AUM) of IBIT reached $70 billion, breaking the record previously set by SPDR Gold Shares (GLD) by a whopping 1,350 days, making it a milestone performance.

The momentum generated by the 2024 ETF listings has seamlessly continued into 2025. As of now, the total assets under management (AUM) of Bitcoin ETFs have grown by about 20% since the beginning of the year, with holdings increasing from about 1.1 million BTC to 1.32 million BTC. At current prices, this is equivalent to holding over $120 billion worth of Bitcoin, accounting for over 6% of BTC's maximum supply.

Unlike the initial post-listing hype that gradually subsided, the demand for ETFs has evolved into a continuous source of buying pressure, accumulating BTC steadily regardless of how the market environment changes.

Furthermore, institutional participation is no longer limited to ETFs. In 2025, Digital Asset Treasuries (DATs) emerged as significant buyers, further strengthening BTC's role as a corporate reserve asset. While Michael Saylor-led Strategies have long been the most representative cases of corporate Bitcoin hoarding, nearly 200 companies globally now hold BTC on their balance sheets.

Considering only publicly traded companies, they collectively hold about 1.06 million BTC, approximately 5% of the total Bitcoin supply; among them, Strategy holds 650,000 BTC, leading by a huge margin and holding the absolute largest share among all companies.

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 institutionalized a consensus that the market had long since formed: BTC is not in the same category as other crypto assets. Within this framework, BTC was recognized as a strategic monetary commodity, while other digital assets were grouped together in a separate asset pool and managed conventionally.

In the official announcement, the White House described BTC as a "unique value storage tool in the global financial system" and compared it to "digital gold." More importantly, the executive order also tasked the Treasury Department with developing potential strategies for future BTC holdings. Although no actual purchases have occurred yet, the mere existence of this "policy option" has already sent a clear signal: Federal policy-making has begun to consider BTC from a forward-looking, reserve asset perspective.

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

Is BTC a "Good Money"?

Although BTC has solidified its leading position among various forms of cryptomoney, 2025 also sparked a new round of discussions about its monetary attributes. As the largest non-sovereign monetary asset by current measures, 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 a record high in December 2024, it has since retraced by about 50%. This retracement is particularly noteworthy as it occurred while gold, priced in USD, continued to hit all-time highs. Year-to-date, the price of gold has risen by over 60%, reaching $4,150 per troy ounce.

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

If BTC failed to rally in sync with gold during one of its strongest periods, how secure is its status as "digital gold"?

If Bitcoin's price movement has not aligned with that of gold, then the next reference point to observe is its performance relative to traditional risk assets. Historically, BTC has shown some correlation with stock market indexes at various stages, including SPY and QQQ.

For example, during the period from April 2020 to April 2025, the 90-day rolling correlation coefficient between BTC and SPY had an average value of around 0.52, while the correlation with gold was relatively weak at 0.18. Based on this historical pattern, if the overall stock market weakens, 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 indexes, coupled with its higher volatility, its significant underperformance relative to these benchmark assets in 2025 has inevitably raised questions about its narrative as a currency.

Against the backdrop of gold and stocks hitting historical highs, based on BTC's past correlation performance, one might have expected a similar trend, but reality proved otherwise. Why is this the case?

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

While multiple factors may have contributed to this outcome, we believe the most crucial driving factor is the change in behavior of early, large holders. As BTC has become increasingly institutionalized over the past two years, its liquidity structure has undergone substantial changes. The depth established through channels like ETFs and regulated markets now allows large holders to sell without causing severe market impacts — a scenario that was nearly impossible in previous cycles.

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

Whether from a wealth of market anecdotes or from on-chain data, there are ample signs indicating that some long-dormant holders are using 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.

A transaction of this magnitude is enough to exert significant pressure on the price in any market environment.

On-chain indicators for Bitcoin 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 been in a continuous net selling state. These addresses collectively held around 6.9 million BTC at the beginning of the year, close to a third of the total Bitcoin supply, and have been consistently 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 seen an additional 51,700 BTC in net outflows (-2% YTD).

As Bitcoin becomes increasingly institutionalized and more transactions and fund flows move to off-chain channels, the informational value inherent in on-chain data will inevitably decrease. Nevertheless, by examining this on-chain data in conjunction with market examples such as the "Satoshi-era investor selling BTC," there is still ample reason to make an assessment: in 2025, especially in the latter half of the year, early large holders of Bitcoin are overall in a net selling state.

This round of supply release has coincided with a noticeable slowdown in the core buying pressure that has driven BTC's price increase over the past two years. In October, inflows into Direct Acyclic Graph (DAT) saw a sharp decline, marking the first time since 2025 that DAT's net inflow for the month did not exceed $1 billion. At the same time, physical Bitcoin ETFs — previously net buyers throughout the year — turned to net sellers starting in October.

When these two major sources of stable demand simultaneously show signs of weakness in the short term, the market has to contend with concentrated selling pressure from early large holders. The combination of these two forces naturally exerts significant pressure on the price.

So, is this cause for concern? Has BTC's "monetary nature" been debunked due to its recent underperformance?

In our view, the answer is no. As the old saying goes: "In times of uncertainty, extend your time horizon." Based solely on about three months of weakness, it is difficult to definitively negate BTC's long-term logic. Historically, BTC has experienced longer periods of underperformance, only to not only rebound but also reach new highs against both the U.S. dollar and gold. The current underperformance is indeed a temporary 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 analysis 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 increase their gold holdings?

Will AI-driven stock trading trends continue to accelerate?

Will Trump fire Powell?

If this were to happen, would Trump push the new Fed chair to start buying BTC?

These variables are extremely hard to predict, and we do not claim to provide definite answers.

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

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

Beyond BTC: How Should We View L1?

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 potential future monetary premium.

Currently, the total market capitalization of the crypto market is approximately $3.26 trillion. Of this, BTC accounts for about $1.80 trillion; in the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in various alternative L1 types. Overall, about $2.63 trillion, or approximately 81% of the crypto market funds, are allocated to those 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 bestows 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 reason that predicting where future currency premiums will flow is arguably the most critical single variable in asset portfolio construction in 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 does L1 stand in all this?

Will the rising tide lift all ships? Or, in the process of BTC "eating" into gold's territory, will some currency premium be drawn away from other L1s?

First, it is essential to assess the current valuation position of L1. Currently, the top four 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, accounting for approximately 83% of the entire alternative L1 sector.

After the top four, there is a significant gap in valuation (e.g., TRX with a market cap of approximately $266.7 billion), but the overall scale is still considerable. Even the 15th-ranked L1 in market cap, AVAX, still has a valuation of over $5 billion.

It is important to note that L1's market cap does not equate 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)
(iii) Demand for Economic Security

Therefore, a project's market cap is not solely derived from the market perceiving it as "money" but is the result of multiple overlapping value logics.

Despite the existence of various competing valuation frameworks, the market is increasingly pricing L1s from the perspective of "monetary premium" rather than "revenue-driven." In recent years, the overall P/S ratio of all L1s with a market cap exceeding $1 billion has slowly risen from around 200x to 400x. However, this raw 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, but their combined market value only accounted for 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 consistent 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 substantiate under fundamental scrutiny. Using the same set of L1 as a sample (continuing to exclude TRON and Hyperliquid), their revenue has seen declines in almost every year, with only one year as an exception:

2021: $123.3 billion

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

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

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

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

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

Further examination of SOL's outperformance reveals that its price increase may even be lower than the growth rate of its ecosystem fundamentals. During the same period where SOL outperformed BTC by 87%, Solana's fundamentals experienced explosive growth: DeFi TVL increased by 2,988%, fees grew by 1,983%, DEX trading volume increased by 3,301%. By any reasonable measure, since December 1, 2022, the scale 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 87%.

Take a moment to read that sentence again.

In order to generate meaningful excess returns against BTC, an L1 not only needs its ecosystem to grow by 200%–300%; it needs 2,000%–3,000% growth to achieve high double-digit relative outperformance.

Based on all of the above, we believe that while L1 valuations still rely on the expectation of "future 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 say that BTC's lead is widening.

Furthermore, while strictly speaking, cryptomoney does not need fees or revenue to support its valuation, these metrics are crucial for L1. Unlike BTC, an L1's narrative heavily depends on its ecosystem development—applications, users, throughput, and economic activity—to "support" the token's value.
However, if an L1's ecosystem usage sees a year-over-year decline, reflected in lower fees and revenue, the token will lose its unique competitive advantage against BTC. In the absence of real economic growth, the narratives of these L1 cryptomoneys will become increasingly challenging for the market to accept.

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

While 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 the moment. For L1s, the burden of proof has shifted: their narratives are no longer persuasive enough when compared to BTC, and they cannot rely on overall market sentiment to endorse their valuations in the long term.

Counterpoint: Why L1s Still Might Challenge BTC?

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

In other words, while BTC has clearly established its position as the dominant cryptocurrency asset, if Bitcoin fails to address several structural challenges in the long 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 become powerful enough, 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 blockchain, including reused addresses and old UTXOs generated before best practices were widely adopted.

According to Nic Carter's estimation, approximately 4.8 million BTC (about 23% of the total supply) are stored in such exposed addresses, which are theoretically vulnerable to a quantum attack. Among them, about 1.7 million BTC (8% of the total supply) are located in early p2pk addresses, which are almost certainly "lost coins" — held by individuals who are deceased, inactive, or no longer in control of the private keys. These assets represent 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 transition, the monetary value of BTC would face collapse, possibly turning the classic saying on its head: "Having the key does not necessarily mean the coins are yours." Therefore, we believe the Bitcoin network will inevitably upgrade to address the quantum threat.

The truly difficult problem 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 unspendable indefinitely, leaving them in a state of vulnerability in the long term. Currently, the two most discussed paths are:

Do nothing: Eventually, any entity with quantum capabilities could seize these coins, reintroducing up to 8% of the supply back into the market, potentially falling into the hands of individuals who were not the original holders. This would almost certainly depress the BTC price and weaken market confidence in its monetary properties.

Directly extinguish these coins: At a certain predetermined block height, make these vulnerable coins unspendable, effectively permanently removing them from the supply. However, this approach also involves significant trade-offs — it goes against Bitcoin's longstanding anti-censorship principles and could 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 expect substantial progress on quantum issues in 2026. This remains a long-term governance issue rather than an imminent engineering challenge.

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

Both of these main approaches can actually be seen as serving this 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 bad actors.

Regardless of which 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, BTC's monetary status will no longer exist; and once this happens, an alternative cryptomoney with a stronger anti-quantum path may take over the currency premium that BTC once held.

Lack of Programmability

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

As a result, a whole class of applications such as DEXs, on-chain derivatives, privacy tools, and others, are almost impossible to build natively on the Bitcoin L1.

Although some supporters believe that this design helps reduce the attack surface and maintain Bitcoin's currency simplicity, it is undeniable that a significant portion of BTC holders hope to enter a programmable environment. As of the time of writing 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 set of risks that Bitcoin was originally designed to eliminate.

Within the Bitcoin ecosystem, attempts to address this issue—including consortium sidechains, early L2 solutions, and low-trust multi-signature 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 method, they often have to settle for centralized custodial institutions.

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

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

For these reasons, we believe that it will eventually be necessary for the Bitcoin network to support these usage scenarios through a fork, enabling them in a trustless and permissionless manner. We do not think this means that Bitcoin needs to transform into a smart contract platform; instead, a more reasonable path might be to introduce new opcodes, such as OP_CAT, to achieve trustless BTC interoperability and composability.

OP_CAT is intriguing because it only requires a 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 combination with Taproot and existing Script primitives, it can allow Bitcoin to directly enforce and constrain spending conditions at the base layer.

This capability will make trustless BTC cross-chain bridges possible without relying on custodians, consortiums, or external validator sets, thereby addressing the core risk of the current problem—these risks are precisely what have resulted in 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 survivability risk to its "moneyness." However, it does limit the reachable market size of BTC as cryptomoney. The demand for a "programmable currency" is already evident: over 370,000 BTC (approximately 1.76% of the total supply) are currently locked in cross-chain environments, and the asset 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 safely participate in the programmable ecosystem. If the market ultimately deems the related risks unacceptable, then L1 assets with programmability such as ETH, SOL, etc., will become the primary beneficiaries of this demand.

Security Budget

The final structural issue facing Bitcoin is its security budget. This topic has been under discussion 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, currently primarily consisting of two parts: block rewards and transaction fees. As the block reward halves approximately every four years, Bitcoin will eventually have to rely mainly 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, amidst the surge in popularity of NFTs and Web3, the market seemed to see a possibility: that transaction fees alone might be enough to compensate miners and maintain network security. In April 2024, on-chain transaction fee revenue on Bitcoin reached $281.4 million, marking the second-highest monthly level in history. However, just a year and a half later, transaction fee revenue plummeted dramatically. In fact, in November 2025, on-chain transaction fees amounted to only $4.87 million, the lowest monthly level since December 2019.

While the sharp decline in fees was alarming, it does not necessarily pose an immediate risk. Bitcoin's block reward 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 new BTC per week, which remains a significant issuance for miners. As long as the block reward remains the primary source of miner income, network security is unlikely to be threatened. However, the likelihood of on-chain fees completely replacing the block reward is becoming increasingly remote.

It should be noted that the discussion around the security budget is not just a simple question of whether fees can entirely replace rewards. Fees do not need to match the current subsidy level; they only need to be higher than the cost of executing a single trust-minimized attack. This cost itself is incalculable and may undergo significant changes as mining technology and energy markets evolve.

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

Even if we acknowledge that there are too many variables to accurately calculate Bitcoin's security budget "requirement," it is still necessary to consider a hypothetical scenario: the miner reward eventually becomes insufficient to economically guarantee network security. In this situation, the incentive mechanism that underpins Bitcoin's "trust neutrality" will begin to weaken, and the security of the network will increasingly rely on social expectations rather than enforceable economic constraints.

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

Another equally plausible scenario is this: no entity is willing to bear losses economically to uphold 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 in the past), 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 form of tail risk that needs to be priced by the market. From this perspective, the currency premium that some L1 assets retain can also be seen as a hedge against the extremely low-probability event of a challenge to "Bitcoin's long-term economic security."

The ETH Debate: Is It Cryptomoney?

Among all major crypto assets, none have sparked as prolonged and heated a debate as ETH. While BTC's position as the dominant cryptomoney is almost unquestioned, ETH's role is far from settled.

Some view ETH as the only asset besides BTC that possesses trustworthy non-sovereign monetary properties, while others see ETH more as a "business" facing declining revenue, narrowing profit margins, and increasing competition from faster and cheaper L1s.

This debate seems to have reached its peak in the first half of this year. In March, XRP briefly surpassed ETH in terms of fully diluted valuation (FDV) (It is worth noting that ETH has achieved full circulation, while only about 60% of XRP's current supply is in circulation).

On March 16, the FDV of ETH was approximately $2,276.5 billion, while XRP reached a FDV of $2,392.3 billion— a result that almost no one would have thought possible just a year ago. Subsequently, on April 8, 2025, the ETH/BTC exchange rate fell below 0.02, marking the first time since February 2020. In other words, all the outperformance of ETH relative to BTC in the previous cycle has been completely wiped out.

By that moment, the market sentiment around ETH had dropped to its lowest level 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 fees has been declining steadily. Solana regained its footing in 2024, while Hyperliquid made a breakthrough in 2025. Together, they compressed Ethereum's fee share to 17%, ranking fourth among all L1s, a steep decline from its first-place position just a year ago.

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

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

In May 2025, signs of excessive market pessimism first appeared. Since then, both the ETH/BTC ratio and ETH's USD price have begun to show significant reversals. The ETH/BTC ratio rose from a low of 0.017 in April to 0.042 in August, a 139% increase; meanwhile, ETH itself surged from $1,646 to $4,793 within the same period, a cumulative increase of 191%. This momentum culminated on August 24 when ETH hit a new all-time high of $4,946.

After this repricing cycle, the market gradually realized that ETH's overall trajectory had shifted towards renewed strength. Adjustments in the Ethereum Foundation's leadership (to be discussed later) and the emergence of Digital Asset Treasuries centered around ETH injected a sense of certainty and confidence into the market that had been notably lacking in the past year.

Prior to this rebound, the divergence between BTC and ETH was particularly evident in their respective ETF markets. When the spot ETH ETF debuted in July 2024, its initial inflows were quite weak. In the first six months, its cumulative net inflow was only $24.1 billion, which appeared rather lackluster compared to the record-breaking performance of the BTC spot ETF.

However, as ETH started to recover, concerns surrounding ETF flows also completely reversed. In the following year, the spot ETH ETF attracted a cumulative inflow 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 inflows between the two was only 2.2 times, far below market expectations.

In other words, when adjusted for market capitalization, ETH's ETF demand actually exceeded that of BTC, which sharply contradicted the previous narrative that "institutions had no substantial interest in ETH." At certain stages, ETH even outperformed BTC across the board.

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

From the perspective of ETF issuers, BlackRock further solidified its leading 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 figure represented a 241% increase from the end of 2024, leading in annual growth rate among all issuers.

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

Behind ETH's strong rebound, the most crucial change was the emergence of Digital Asset Treasuries (DATs) centered around ETH. DATs brought a stable and repeatable source of demand to ETH that had never been seen before, providing an anchoring effect on asset prices in a way that narrative or speculative capital could not achieve. If ETH's price action signaled a superficial inflection point, then the ongoing accumulation of DATs was the deep structural shift that facilitated this turnaround.

The DAT had a significant impact on the ETH price. Throughout the year 2025, the 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 management—a company that originally focused on Bitcoin mining but shifted 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, solidifying its position as the undisputed leader in the field.

Despite the powerful ETH rally, this bull run eventually cooled off. By November 30, ETH had retraced from its August high to $2,991, not only significantly below the current cycle's peak 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 triggered the bearish narrative. If anything changed, it was that the debate surrounding ETH had become more intense than ever before.

On the supportive side, ETH is demonstrating many similarities to BTC's past in establishing its monetary status: ETF inflows are no longer sluggish; digital asset treasuries have become a persistent source of demand; more importantly, an increasing number of market participants are starting to view ETH as a special asset distinct from other L1 tokens—some even see it within the same monetary framework as BTC.

However, the core concerns that weighed on ETH at the beginning of the year still persist. Ethereum's fundamentals have not fully recovered; its share in 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 ETH's strong rebound, BTC has comfortably 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 surge as an exit to liquidity rather than a confirmation of the long-term monetary narrative.

The core issue of this debate is not whether Ethereum has "value" but rather: How does the asset ETH derive value from the Ethereum network?

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

Today, we can fairly confidently say that things are not going to unfold as previously envisioned. Ethereum's fee revenue has seen a significant decline, with no clear signs of recovery; and its most crucial sources of growth at present—real-world assets (RWA) and institutional participation—are primarily based on the US dollar as the underlying currency, rather than ETH.

In this context, the value of ETH 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 protocol level continues to rise, more users and capital will choose to perceive 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—this is not a flaw in itself (an entire section has previously explained how BTC has achieved value accrual through this method), but it also means that: ETH's price performance is no longer directly linked 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 is always secondary to and derivative of BTC. Once again, the market sees ETH as a leveraged expression of the BTC monetary narrative, rather than an independent monetary asset.

In 2025, the 90-day rolling correlation between ETH and BTC mostly remains in the 0.7 to 0.9 range, while its rolling beta values have surged to multi-year highs, at times 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 crucial distinction. Currently, the establishment of ETH's monetary correlation is because the BTC monetary narrative remains robust. As long as the market continues to believe in BTC as a non-sovereign store of value, some marginal participants will be willing to extrapolate this belief to ETH.

And if BTC continues its strength 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, the accumulation of its ETH has been primarily achieved through equity financing. However, in the new wave of crypto bull market, these entities could 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 and use the funds raised to directly purchase ETH, while staking this ETH to earn ongoing rewards. Under reasonable assumptions, staking rewards could partially hedge fixed interest and dividend expenses, allowing the treasury to both continually accumulate ETH in favorable market conditions and increase the leverage on the balance sheet.

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

Essentially, the market still views ETH's monetary premium as reliant on BTC's existence. ETH has not yet become a standalone macro-based autonomous monetary asset; it is more like a secondary beneficiary of BTC's monetary consensus. The recent recovery of ETH reflects a small part of the marginal participants who are starting to consider ETH as an asset close to BTC, rather than just a regular L1 token. However, even in a period of relative strength, the market's belief in ETH still cannot escape the ongoing 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 characteristics relative to BTC, as long as BTC's core logic continues to hold, ETH has the potential for significant upside; and the structural demand from DATs and corporate treasuries indeed provides upward potential. However, looking into the foreseeable future, ETH's monetary trajectory still depends on BTC. Until ETH demonstrates lower correlations and betas — something that has never happened over a longer time scale — 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 monetary perception in 2025. For years, ZEC has been outside the core level of cryptomoney, seen as a niche privacy coin rather than a true monetary asset. However, with increasing concerns about monitoring and the accelerated institutionalization of Bitcoin, privacy is once again seen as a core monetary attribute, no longer just a marginalized ideological preference.

Bitcoin has already proven that a non-sovereign digital currency can operate on a global scale, but it has failed to preserve 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 through a block explorer. This poses an irony: a tool originally designed to undermine state control has unintentionally created a financial panopticon.

Through zero-knowledge cryptography, Zcash 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 as 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 privacy-oriented cryptomoney with ideal properties and positioning ZEC as a hedge against rising state surveillance and Bitcoin's institutionalization process.

Year-to-date, ZEC has risen 666% relative to BTC, reaching a market capitalization of 7 billion USD, and at one point surpassing XMR in terms of market value to become the most valuable privacy coin. This relative strength indicates that the market is pricing ZEC as a viable privacy-oriented cryptomoney alongside XMR.

Privacy on Bitcoin

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

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

As mentioned earlier, before a soft-fork without enabled zero-knowledge proofs (e.g., OP_CAT), any Bitcoin L2 solution cannot provide Zcash-level privacy while inheriting Bitcoin's security. The realistic choices are only three:

Introducing a trusted intermediary (federation model);

Accepting long and interactive withdrawal delays (BitVM model);

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

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

Countering CBDC Hedging

The importance of privacy is further amplified by the advent of Central Bank Digital Currencies (CBDC). Already, half of the world's countries are researching or have launched CBDCs. CBDCs are programmable, meaning the issuing authority can not only trace every transaction but also control how, when, and where funds are used. Funds can even be programmed to only be usable 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 speculation but a reality:

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

United States (2020–2025): Regulatory bodies and major banks, citing "reputational risk" rather than security and soundness, have deplatformed legal but politically unpopular industries. This trend was so severe that the White House ordered a review, and the U.S. Office of the Comptroller of the Currency (OCC) documented systemic deplatforming of legitimate industries ranging from oil and gas, firearms, adult content to the crypto industry in its 2025 Deplatforming Study.

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, requiring all regulated exchanges to cease providing services to them. This event demonstrates that Western democratic countries 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, Zcash's significance goes beyond avoiding CBDC; it is increasingly becoming a tool necessary to protect Bitcoin itself.

Counteracting Bitcoin's "Capture"

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

Bitcoin is rapidly consolidating towards centralizing entities. Overall, 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, roughly 24% of the total supply, currently held in third-party custody.

This concentration means that approximately 24% of the total BTC supply is exposed to the risk of regulatory seizure, a situation akin to the centralized conditions relied upon during the U.S. government's gold confiscation in 1933. Back then, the U.S. government issued Executive Order 6102, mandating that citizens turn in their gold above $100 to the Federal Reserve in exchange for paper currency at the official price of $20.67 per troy ounce of gold. The enforcement of this policy was not through force but rather accomplished through "chokepoint" nodes in the banking system.

For Bitcoin, the enforcement mechanism is nearly identical. Regulators do not need to possess your private keys to confiscate this 24% of the supply; they only need legal jurisdiction over custodians. In this scenario, the government could simply issue enforcement orders to institutions like BlackRock and Coinbase. Due to their legal compliance obligations, these companies would be compelled to freeze and hand over the BTC they custodize. Overnight, close to a quarter of the Bitcoin supply could effectively be "nationalized" without needing to alter any code. Although this is a fringe scenario, it cannot be completely ruled out.

Furthermore, the transparency of the blockchain means that self-custody alone no longer provides sufficient defense. Any BTC withdrawn from a KYC exchange or brokerage account could face the risk of being traced back, as its "paper trail" could ultimately lead the government to the final destination of the assets.

BTC holders can sever this custodial chain by converting to Zcash, achieving an "air gap" between their assets and the surveillance system. Once funds enter the privacy pool (shielded pool), their final receiving address would appear as a cryptographic "black hole" to external observers. Regulators can track the movement of funds out of the Bitcoin network but cannot see their ultimate destination, making these assets invisible to the national actor.
However, cashing out the assets back into the domestic banking system remains a practical bottleneck, but the assets themselves possess censorship resistance and are difficult to actively trace. It is crucial to emphasize that the strength of this anonymity entirely depends on operational security: address reuse or acquiring assets through a KYC exchange will leave permanent associational traces before entering the privacy pool.

The Road to Product-Market Fit

The demand for privacy-centric cryptocurrency has always existed; Zcash's past struggles revolved around its inability to meet users where they were. Over the years, the protocol has been plagued by high memory usage, long proof generation times, and a complex and heavy desktop setup, making privacy transactions slow and inaccessible to 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 generation time of zero-knowledge proofs by 81% (to around 7 seconds), laying the groundwork 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 has completely eliminated Zcash's reliance on the trusted setup, achieving full trustlessness in a cryptographic sense. Meanwhile, Orchard also introduced Unified Addresses, integrating the transparent pool and the shielded pool into a single receiving address, eliminating the need for users to manually choose between different address types.

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

After the UX barriers are cleared, 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 supported assets such as BTC, ETH for shielded ZEC without interacting with any CEX. Additionally, NEAR Intents support users to use shielded ZEC as a funding source to make payments to any address on 20 blockchains, with any supported assets.

These measures work together to enable Zcash to bypass historical friction points, directly tap into global liquidity, and truly meet its position in the market.

Future Outlook

Since 2019, ZEC has shown 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 risen to a historical high, meaning that as the correlation between the two decreases, ZEC is amplifying BTC's price movements. This divergence indicates that the market is beginning to assign a unique premium to Zcash's privacy guarantees.

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 as surveillance tightens and the global financial system becomes increasingly instrumentalized.

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

Nevertheless, ZEC can still carve out its own niche positioning without being dependent on BTC. They are not solving the same problem but correspond to different usage scenarios within the cryptomoney system:
BTC is positioned as a robust cryptomoney emphasizing transparency and security;
ZEC is a privacy-centric cryptomoney emphasizing confidentiality and financial privacy.

In this sense, the success of ZEC does not hinge on replacing BTC but on complementing BTC with attributes it deliberately does not provide.

2026: Emergence of Application Money

We expect that "Application Money" will continue to accelerate in 2026. Application Money refers to a currency asset designed specifically for a particular application scenario, aiming not to serve as a general-purpose currency like BTC or L1 tokens but to serve the internal economic system of a single application.

To understand why application-specific currencies become 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 to a common monetary standard.

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

With the expansion and interconnection of economies, multiple currency systems often follow a power law distribution and eventually converge to 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 reliance, and the physical difficulty of transferring funds across regions. Under these conditions, the network effect of money continually strengthens 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 friction, making it possible for application-specific currency systems to exist in a low-friction environment. Users can seamlessly move in and out of different currency systems without incurring high costs. As a result, applications no longer need to rely on a general-purpose monetary system; instead, they can build their own application-specific monetary systems, internalizing the value generated by their internal economic activities and keeping it within the system.

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

Due to space limitations, please visit the Messari website for the rest of the report

[Original Article Link]

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia