For investors on the cutting edge of digital technology, Bitcoin is beginning to appear somewhat outdated.
Addicted to rapid growth, some individuals are moving away from the initial cryptocurrency, created as a substitute for traditional cash. Instead, they embrace its offspring as intrinsic tokens of blockchain systems that support smart contracts and applications.
The Smart Contract Leaders Index by MarketVector, which monitors significant tokens of this nature, such as ether, dot, and Solana, has surged by 36% in 2023, surpassing even the 33% increase in Bitcoin. The token for Solana has witnessed a remarkable rise of 76% this year.
According to Bundeep Rangar, the CEO of Fineqia, an asset management firm focusing on cryptocurrency, he anticipates that the most significant returns in the cryptocurrency market will originate from smart contract tokens on platforms that endorse decentralized finance (DeFi) applications.
He added that those tokens would likely offer capital appreciation similar to what one would expect from a growth stock.
Based on CoinShares data, some investors in the one trillion-dollar digital assets market share this sentiment. Investment products that follow ether and Solana have seen modest inflows, while bitcoin products have experienced four consecutive weeks of outflows.
Smart contract tokens, including ether, dot, Solana, and Cardano, constitute around seven of the top 20 largest cryptocurrencies.
Bank of America (BofA) analysts have noted that smart contract tokens and their underlying blockchain-based applications are similar to technology shares or growth stocks in the stock market. “We anticipate that 2023 will witness a divergence in token prices,” stated the analysts in a research note released on February 24.
Bitcoin (the Boss)
For a long time, Bitcoin has strongly correlated with technology stocks. However, this correlation may weaken as smart-contract tokens gain traction and become the new driving force behind the crypto market’s exceptional growth.
On February 23, the cryptocurrency’s 30-day correlation with the Nasdaq turned negative for the first time since early December. A measure of 1 signifies that the two assets are moving in unison.
A few cryptocurrency industry observers suggest that the strong performance of smart-contract tokens this year indicates that the most established decentralized finance (DeFi) protocols have withstood the market turbulence of 2022. However, they advise that global macroeconomic conditions and central bank policies have the potential to negatively impact the growth of cryptocurrency projects and their corresponding tokens.
According to James Butterfill, the head of research at CoinShares, it is too early to declare a significant divergence in the cryptocurrency market. Bitcoin still holds significant influence over the sector, with its share of the total crypto market capitalization slightly increasing to 40% from 38% at the beginning of the year.
Butterfill also stated that such deviations could indicate that the cryptocurrency world is maturing. As the market progresses, it will become more sophisticated and sophisticated, and as a result, we can expect to see greater price divergence.
