business
Published March 7, 2023 3:00 p.m. ET
An advertisement for Bitcoin, one of the cryptocurrencies, is displayed on a building in Hong Kong, on Nov. 18, 2021. AP-Kin Cheung
As investors look for ways to increase their digital holdings, some are turning away from the original cryptocurrency – bitcoin – and focusing their attention on its descendants created as native tokens of blockchain platforms that host smart contracts and apps.
MarketVector’s Smart Contract Leaders Index, which tracks major tokens of this kind – including ether, dot and solana – is up 36% in 2023, outperforming bitcoin’s 33% growth. The token for solana has seen an impressive 76% rise this year.
Bundeep Rangar, CEO of crypto-focused investor Fineqia, said he expected the biggest crypto returns to come from smart contract tokens on platforms that support decentralized finance (DeFi) apps.
“Those are ones that you will find capital appreciation, similar to what a growth stock will be,” he commented.
CoinShares data shows that investment products tracking ether and solana have seen small inflows even as bitcoin products suffered four consecutive weeks of outflows, suggesting that investors are taking note of the potential gains these tokens offer.
BofA analysts also suggested that smart contract tokens and the blockchain-based applications they power are somewhat similar to growth stocks in the equities world, typically technology shares.
“We expect 2023 to be the year of token price divergence,” the analysts wrote in a Feb. 24 research note.
BITCOIN DOMINANCE
Bitcoin has long traded in tandem with tech stocks, but that connection may be weakening as smart-contract tokens become increasingly attractive for investors seeking high growth.
The cryptocurrency’s 30-day correlation with the Nasdaq turned negative on Feb. 23 for the first time since early December, where a measure of 1 indicates the two assets are moving in lockstep.
Commentators suggest the relative strength in smart-contract tokens this year points to a solid performance by the most established DeFi protocols despite the market ructions of 2022. But they also warned that the global macro outlook and central bank policy could hit the growth of crypto projects and their associated tokens.
James Butterfill, head of research at CoinShares, cautioned that it was too early to call a major divergence in crypto. He noted that bitcoin still holds a large portion of the total crypto market capitalization, up slightly to 40%, from 38% at the start of the year.
Butterfill said such departures could be a sign of the cryptoverse maturing.
“We should be increasingly adopting the view that the market, as it evolves, will become more sophisticated and more mature, and we will start to see that price divergence.”
(Reporting by Lisa Mattackal in Bengaluru and Hannah Lang in Washington, D.C.; Editing by Vidya Ranganathan and Pravin Char)
