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Grayscale Research Insights: Crypto Sectors in Q3 2024

Research Team
Last Update 06/26/2024
  • Our Crypto Sectors framework shows mixed performance across the asset class year to date, despite large price gains for Bitcoin. Like public equity markets, crypto returns this year have lacked breadth.
  • We are excited to introduce the Grayscale Research Top 20, our picks for high-potential tokens for the coming quarter. These crypto assets are selected upon the Grayscale Research team’s consideration of upcoming catalysts, trending market themes, and token-specific fundamentals. Several of the assets in our Top 20 list have high price volatility and should be considered high risk.
  • Because of potential spot Ethereum ETP approval, we expect a heavy focus on the Ethereum ecosystem this quarter.

Navigating the crypto asset class can be challenging, which is why Grayscale has created Crypto Sectors — a comprehensive framework for understanding the full spectrum of investable crypto assets and how they relate to their underlying technologies. Crypto Sectors provides investors with a roadmap comparable to the tools common in traditional markets, and is designed to help investors better understand and navigate the ever-evolving crypto asset class. In addition, in partnership with FTSE Russell, we developed the FTSE Grayscale Crypto Sector Index Series to measure and monitor crypto markets.[1]

Grayscale Crypto Sectors divides the digital asset universe into five distinct segments: (i) Currencies, (ii) Smart Contract Platforms, (iii) Financials, (iv) Consumer & Culture, and (v) Utilities & Services (Exhibit 1). The tokens in the five Crypto Sectors are associated unique use cases and investable exposures. As a result, their valuations are subject to different fundamental and technical drivers.

Exhibit 1: Crypto Sectors divides digital asset markets into five segments

Narrow Crypto Gains Year to Date

Since the start of 2024, although Bitcoin’s price is up roughly 50%, our Crypto Sectors Market Index (CSMI) actually declined by about 3% (Exhibit 2). The assets in the five Crypto Sectors and the aggregate CSMI are weighted by the square root of their market capitalization, to reduce Bitcoin’s dominance and better represent the broader range of assets across the industry. On a market cap-weighted basis, the CSMI increased by 30%, reflecting Bitcoin’s significant gain and its sizable share of total market capitalization (about 60%). Among the five market segments, the best performing was the Currencies Crypto Sector — reflecting Bitcoin’s outperformance — while the worst performing was the Consumer & Culture Crypto Sector — primarily due to weakness in assets related to video game applications this year.

Exhibit 2: Mixed performance year to date despite large gains for Bitcoin

The wide disparity in returns between Bitcoin and the broader crypto market demonstrates that this year’s gains have lacked breadth — much like in U.S. equity markets, where a small number of large-cap technology companies have recently dominated index returns. Using the Crypto Sectors framework, we can create measures of market breadth like those applied in other markets. For example, Exhibit 3 shows an “Advance/Decline” index, where each day we track the net percent of Crypto Sectors tokens with price increases vs. price declines; we then calculate the cumulative total over time. Based on this measure, crypto market breadth peaked around late March/early April 2024, and has declined since that time. Year to date, only about 30% of Crypto Sectors tokens have seen price appreciation, despite Bitcoin’s large gain.

Exhibit 3: Declining market breadth since March/April

A comparative bright spot has been assets partly adjacent to artificial intelligence (AI) technologies, which are found in both the Smart Contract Platforms Crypto Sector and the Utilities & Services Crypto Sector.[2] These protocols attempt to solve AI-related problems (e.g., bots and deepfakes, privacy, model verification), provide resources that are critical to AI development (e.g., compute, storage, data), and/or offer a general platform for AI-related services (for more details, see our report The Emergence of AI and Crypto Synergies). Year to date, an equally weighted basket of AI-adjacent Crypto Sectors tokens has increased 80%, compared to the small decline for the crypto market as a whole (Exhibit 4).

Exhibit 4: AI-related tokens outperformed

In addition to AI, market participants have focused on a variety of other themes, which has partly affected relative performance across Crypto Sectors. To contribute to our understanding of market trends, Grayscale Research incorporates measures of “narrative mindshare” from data provider Kaito. These data measure the relative frequency of social media mentions for specific crypto market themes or narratives, which is helpful in evaluating crypto assets that are driven by the community of believers and supporters who often express their views on social media platforms. Over the last month, for example, AI has remained a dominant theme, followed by exchange-traded funds (ETFs) — i.e., tokens for which exchange-traded product (colloquially referred to as “ETF”) approval may be a short-term catalyst — memecoins, and blockchain-based gaming (Exhibit 5). While market focus may change, themes are often persistent, and measures of narrative mindshare may therefore offer clues to market performance in the months ahead.

Exhibit 5: AI remains dominant market theme

Looking Ahead: Ethereum in Focus

For the coming quarter, Grayscale Research expects crypto markets to be dominated by the implications of spot Ether exchange-traded product (ETP) approval in the U.S. market. In late May, the Securities and Exchange Commission (SEC) approved Form 19b-4 filings from several issuers to list these products on U.S. exchanges. In addition, SEC Chair Gensler said recently that regulators could approve the remaining filings “sometime over the course of this summer.[3] Therefore, while timing remains uncertain, for the purposes of our market analysis, Grayscale Research assumes that these products will begin trading in Q3 2024. Like with the spot Bitcoin ETPs that launched in January 2024, the Grayscale Research team also expects these new Ether products to produce meaningful net inflows (albeit less than Bitcoin ETPs), potentially supporting valuations for Ethereum and tokens within its ecosystem (for more details, see our report The State of Ethereum).

The Ethereum ecosystem has several unique features, which the launch of spot Ether ETPs may highlight. For example, the Ethereum network is pursuing a modular design philosophy in which different components of blockchain infrastructure work together to deliver a more optimal end user experience and bring down costs. In addition, Ethereum is home to the largest decentralized finance (DeFi) ecosystem in crypto, as well as a majority of tokenization projects (for more details, see our report Public Blockchains and the Tokenization Revolution). If ETP approval stimulates Ethereum interest and adoption, we may also see rising activity and valuation support for select Layer 2 tokens (e.g., Mantle), Ethereum DeFi protocols (e.g., Uniswap, Maker, and Aave), and other assets central to the functioning of the Ethereum network (e.g., Lido, a staking protocol).

Aside from U.S. spot Ether ETP approval, Grayscale Research expects a variety of current market themes to remain in focus over the coming quarter — especially the potential intersection between blockchain technology and AI. One of the assets in this category is Near, founded by the co-creator of the “Transformer” architecture that powers AI-systems like ChatGPT. Near is one of the top smart contract platforms in terms of daily active users and has gained significant real-world adoption in non-financial use cases. However, recently Near leaned into its AI expertise, unveiling efforts to develop “user-owned AGI” through its R&D arm led by a former OpenAI research engineer consultant.[4] Decentralized GPU marketplaces such as Render and Akash may also benefit from a continued market preference for AI exposures.  

In addition to major market themes, a variety of projects appear to be benefiting from their own idiosyncratic adoption trends, whether due to innovative technology or integrations with platforms that offer scope for user growth.   Two notable examples are Toncoin and Pendle. The TON blockchain is a smart contact platform tied to the Telegram messaging platform, and is seeing significant growth in users, transactions, and fee revenue. Pendle Finance is a relatively new DeFi protocol that allows users to customize the yield profile of their strategies. While not a new trend, we also believe the Solana network is seeing organic adoption growth, thanks to a compelling user experience (for more details, see our Solana Building Block).    

Lastly, crypto markets may continue to differentiate between tokens with relatively low vs. relatively high supply inflation. Although Bitcoin has a maximum total supply and fairly low annual inflation, many of the tokens in our Crypto Sectors universe do not share this structure. In fact, in many cases, tokens have relatively low circulating supply, and a relatively large amount of monthly or annual supply inflation (“unlocks”). In these cases, even if a project is experiencing user adoption and revenue growth, the growth in supply could be dilutive for existing token holders. Examples include prominent Ethereum Layer 2 networks, like Arbitrum and Optimism, where the native tokens have seen relatively poor returns despite user adoption, potentially due to high growth in circulating supply.  

Introducing the Grayscale Research Top 20

To highlight specific Crypto Sectors high potential tokens, we are introducing the Grayscale Research Top 20 (Exhibit 6). The Top 20 represents a diversified set of assets across Crypto Sectors that, in our view, have high potential over the coming quarter, due to a combination of (i) immediate catalysts or trending themes, (ii) favorable protocol-specific adoption trends, and (iii) low or moderate token supply inflation. The assets are selected to represent the near-term market outlook, and therefore may exclude higher market capitalization assets without immediate catalysts and/or ongoing improvements in fundamentals. We intend to update the Grayscale Research Top 20 list on a quarterly basis. Several of the listed assets have high volatility (as shown in the right most column of Exhibit 6) and should be considered high-risk assets.

Exhibit 6: High-potential assets for Q3 2024


[1] The FTSE Grayscale Crypto Sectors Index Series went through its scheduled quarterly rebalance on June 21.  

[2] The Crypto Sectors tokens that Grayscale Research considers potentially adjacent to AI technology are, in alphabetical order, AGIX, AKT, AR, FET, FIL, GLM, LPT, NEAR, OCEAN, PRIME, RNDR, RSS3, TFUEL, THETA, TRAC, and WLD.

[3] Source: CoinTelegraph.

[4] Source: Near and Crunchbase.

Important Information

Investments in digital assets are speculative investments that involve high degrees of risk, including a partial or total loss of invested funds. Investments in digital assets are not suitable for any investor that cannot afford loss of the entire investment. All content is original and has been researched and produced by Grayscale Investments, LLC (“Grayscale”) unless otherwise stated herein. No part of this content may be reproduced in any form, or referred to in any other publication, without the express consent of Grayscale. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any investment in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. This content does not constitute an offer to sell or the solicitation of an offer to sell or buy any security in any jurisdiction where such an offer or solicitation would be illegal. There is not enough information contained in this content to make an investment decision and any information contained herein should not be used as a basis for this purpose. This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. Investors are not to construe this content as legal, tax or investment advice, and should consult their own advisors concerning an investment in digital assets. The price and value of assets referred to in this content and the income from them may fluctuate. Past performance is not indicative of the future performance of any assets referred to herein. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on Grayscale’s views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements. In addition to statements that are forward-looking by reason of context, the words “may, will, should, could, can, expects, plans, intends, anticipates, believes, estimates, predicts, potential, projected, or continue” and similar expressions identify forward-looking statements. Grayscale assumes no obligation to update any forward-looking statements contained herein and you should not place undue reliance on such statements, which speak only as of the date hereof. Although Grayscale has taken reasonable care to ensure that the information contained herein is accurate, no representation or warranty (including liability towards third parties), expressed or implied, is made by Grayscale as to its accuracy, reliability, or completeness. You should not make any investment decisions based on these estimates and forward-looking statements. There is no guarantee that the market conditions during the past period will be present in the future. Rather, it is most likely that the future market conditions will differ significantly from those of this past period, which could have a materially adverse impact on future returns. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. We selected the timeframe for our analysis because we believe it broadly constitutes the most complete historical dataset for the digital assets that we have chosen to analyze.


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