Grayscale Research Insights: Crypto Sectors in Q1 2025
Research Team
We have updated the Grayscale Research Top 20. The Top 20 represents a diversified set of assets across Crypto Sectors that, in our view, have high potential over the coming quarter. The new assets this quarter are HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS. All the assets in our Top 20 list have high price volatility and should be considered high risk.
Exhibit 1: Positive returns for our Crypto Sectors index in 2024
Exhibit 2: Crypto market cap increased by $1 trillion in Q4 2024
In creating the infrastructure for application developers, the architects of smart contract blockchains face various design choices. These design choices impact three factors that make up the “blockchain trilemma”: network scalability, network security, and network decentralization. For instance, prioritizing scalability often manifests in high transaction throughput and low fees (e.g., Solana) while prioritizing decentralization and network security may result in lower throughput and higher fees (e.g., Ethereum). The specific design choices result in a wide range of outcomes for block times, transaction throughput, and average transaction fees (Exhibit 3).
Exhibit 3: Smart contract platforms have different technical features
Exhibit 4: All smart contract platforms compete for fee revenue
The Grayscale Research Top 20
Each quarter the Grayscale Research team analyzes hundreds of digital assets to inform the rebalancing process for the FTSE/Grayscale Crypto Sectors family of indexes. Following this process, Grayscale Research produces a Top 20 list of assets within the Crypto Sectors universe. The Top 20 represents a diversified set of assets across Crypto Sectors that, in our view, have high potential over the coming quarter (Exhibit 4). Our approach incorporates a range of factors, including network growth/adoption, upcoming catalysts, sustainability of fundamentals, token valuation, token supply inflation, and potential tail risks.
Hyperliquid (HYPE): Hyperliquid is a Layer 1 blockchain designed to support on-chain financial applications. Its primary application is a decentralized exchange (DEX) for perpetual futures, featuring a fully on-chain order book.
Ethena (ENA): Ethena protocol has developed as novel stablecoin, USDe, which is backed primarily by hedged positions in Bitcoin and Ether collateral.[5] Specifically, the protocol holds long positions in Bitcoin and Ether and short positions in perpetual futures contracts on the same assets. A staked version of the token offers from the difference between spot and futures prices.
Virtuals Protocol (VIRTUAL): Virtuals Protocol is a platform for creating AI agents on Base, an Ethereum Layer 2 network. These AI agents are designed to perform tasks autonomously, mimicking human decision-making. The platform allows for the creation and co-ownership of tokenized AI agents, which can interact with their environment and other users.
Jupiter (JUP): Jupiter is the premier DEX aggregator on Solana, boasting the highest TVL among all applications on the network. As retail traders increasingly enter the crypto market through Solana and speculation intensifies around Solana-based memecoins and AI agent tokens, we believe Jupiter is well positioned to capitalize on this growing market activity.
Jito (JTO): Jito is a liquid taking protocol on Solana. Jito has experienced substantial growth in adoption over the past year and offers one of the best financial profiles in all of crypto, generating over $550mn in 2024 fee revenue.
Exhibit 5: Updates to the Top 20 feature DeFi applications, AI agents, and the Solana ecosystem
Note: Shading denotes additions for the upcoming quarter, Q1 2025. *Asterisk denotes the appropriate sector for assets that did not make the Crypto Sectors index. Source: Artemis, Grayscale Investments. Data as of December 20, 2024. For illustrative purposes only. Assets subject to change. Grayscale, its affiliates, and clients may maintain positions in the digital assets discussed here.All the assets in our Top 20 list have high price volatility and should be considered high risk.
In addition to the new themes mentioned above, we continue to be excited about themes from previous quarters such as Ethereum scaling solutions, tokenization, and decentralized physical infrastructure (DePIN). Each of these themes is represented by the inclusion of protocols that return to the top 20, such as Optimism, Chainlink, and Helium, respectively.
This quarter we have rotated the following out of the Top 20: This quarter we have rotated the following out of the Top 20: TON, Near, Stacks, Maker (Sky), UMA Protocol, and Celo. Grayscale Research continues to see value in each of these projects, and they remain important elements of the crypto ecosystem. However, we believe the revised Top 20 list may offer more compelling risk-adjusted returns for the coming quarter.
Investing in the crypto asset class involves risks, some of which are unique to the crypto asset class, including smart contract vulnerabilities and regulatory uncertainty. Moreover, all the assets in our Top 20 have high volatility and should be considered high risk and are therefore not suitable for all investors. In light of the risks to the asset class, any investment in digital assets should therefore be considered in the context of a portfolio and with consideration of an investor’s financial goals.
Index Definition: The FTSE/Grayscale Crypto Sectors (CSMI) measures the price return of digital assets listed on major global exchanges.
[1] The Crypto Sectors Total Market Index was up 58% quarter to date through December 20th, 2024. Source: FTSE, Grayscale Investments.
[2] FTSE, Grayscale Investments, as of December 20, 2024.
[3] Source: FTSE Russell. Data as of December 20, 2024.
[4] As of December 20, 2024
[5] USDe collateral may also include other liquid stablecoins.
