Cryptoassets of the Month: October 2023

Every month, our research team will present the cryptoassets of the month that increased or dropped in value by more than 15%. With a data-driven approach, we highlight the most important developments and events causing price movements.

Figure 1 –  30-Day Performance: Cryptoassets of the Month vs. Traditional Asset Classes

Source: 21Shares, CoinGecko, and Yahoo Finance, from 30-Sep-2023 to 31-Oct-2023 (Close Price)

Solana (SOL)

Solana (SOL) rallied 79.90% in October, outperforming the broader market. SOL underperformed for almost two years as it was ridiculed for chain issues and forced selling after the FTX collapse in November 2022. Figure 2 shows that we are witnessing a massive mean reversion, with SOL catching up on relative gains relative to BTC and ETH. Regarding fundamentals, Solana remains one of the most vibrant ecosystems outside of Ethereum, with almost 1,000 monthly active developers, demonstrating that it has retained a loyal community. Crucially, it has also attracted the attention of non-crypto native players like Fintech giants Visa and Shopify. Finally, Breakpoint – the annual gathering of the Solana community – is taking place from October 30 to November 3. Some of the planned programming includes keynotes from industry leaders like Circle, Google Cloud, Visa, and Greenpeace.

Figure 2 – SOL priced against BTC and ETH

Source: 21Shares, TradingView

Chainlink (LINK)

Chainlink (LINK) rallied 39.17% over the past month as its Cross-Chain Interoperability Protocol (CCIP) continues to gain institutional traction. On October 24, Vodafone's Digital Asset Broker (DAB) announced the results of a proof of concept leveraging CCIP to address "longstanding challenges in the $32 trillion global trade ecosystem." The experiment focused on the seamless exchange of crucial trade documents across various blockchains and Internet of Things (IoT) networks. For instance, a vessel detecting cargo damage could automatically relay data to smart contracts via DAB's platform and CCIP, triggering an insurance process. Increased adoption of CCIP would benefit Chainlink's profitability as the protocol charges a fee on top of the gas cost overhead for every transaction. Since launching in July 2023, Chainlink has earned over $100,000 from CCIP.

Stacks (STX)

Stack's native token STX rose 30.64% over the past month. In anticipation of the "Nakamoto upgrade," Stacks released a developer version of sBTC, a trust-minimized solution designed to move Bitcoin between the Bitcoin L1 and the Stacks L2. To acquire sBTC, users must swap their Bitcoin for sBTC through a smart contract. The value of sBTC is pegged to the value of Bitcoin, enabling users to represent their BTC holdings on the Stacks blockchain. This innovation has the potential to unlock Bitcoin's ~$670 billion in idle capital, expanding its use cases beyond a store-of-value asset. Regarding its price performance, STX has behaved as a higher-beta asset throughout 2023. For context, beta measures risk in the form of volatility against a benchmark. Figure 3 shows that STX exhibits a beta of ~1.5 using Bitcoin as the benchmark, meaning it moves 50% as much as BTC on any given day.

Figure 3 – STX beta coefficient using BTC as the benchmark (Jan 1, 2023 - Oct 30, 2023)

Source: 21Shares, Data from CoinGecko

Bitcoin (BTC)

Bitcoin traded up 28.56% over the past month. Bitcoin dominance (i.e., Bitcoin's market cap as a percentage of crypto's total market cap) is above 50%, a figure not seen since April 2021. A rise in Bitcoin dominance has historically correlated to risk-off environments during bear markets. What's unique about today is that we are observing a "flight to quality" not just within crypto but in the context of global markets. Due to its properties as a neutral, international, and censorship-resistant asset, BTC is outperforming at a time when both stocks and bonds have been under pressure. Figure 4 shows that the 30-day rolling correlation between BTC and US equities has decreased considerably since the beginning of the year, from ~0.60 to ~0.20. Moreover, its correlation to bonds and gold has turned negative, demonstrating that BTC has its own value drivers that can make it an effective portfolio diversified.

Figure 4 – 30-day rolling correlation between BTC and other asset classes

Source: 21Shares, Data from Yahoo Finance

Avalanche (AVAX)

Avalanche's native token AVAX traded up 22.51% over the past month amidst exciting ecosystem developments. SK Planet subsidiary and Korean entertainment giant Dreamus integrated its ticketing platform with Avalanche and SK Planet's UPTN Subnet. The reported 21 million users of the ticketing app "OK Cashbag" can buy Avalanche-based tickets, simplifying the onsite authentication process and solving issues such as ticket counterfeiting. On a less optimistic note, Stars Arena – a social platform built on Avalanche – experienced an exploit that saw 266k AVAX worth ~$2.9 million stolen due to a reentrancy issue. Although the company secured the funding to make users whole, it shows that crypto applications need to drastically improve the user experience and prioritize security to reach mainstream adoption.

Fantom (FTM)

Fantom's native token FTM rose 20.90% over the past month. On October 24, the Fantom Foundation announced the testnet launch of Fantom Sonic, the network's latest upgrade, ahead of its mainnet release in 2024. Sonic is expected to enhance Fantom's throughput to 2,000 transactions per second (TPS) at an average settlement time of one second. While this technological breakthrough is impressive, it does not solve Fantom's primary challenge – its lack of organic demand. Per Artemis data, Fantom had about 25k daily active users as of October 30, a fraction of competing platforms like Arbitrum (106k), Solana (229k), and Polygon (359k). To achieve long-term success, Fantom will have to shift its focus from improving the infrastructure layer to attracting developers that build applications users want.

Aave (AAVE)

Aave (AAVE) traded up 20.65% over the past month. On October 18, Aave launched a $1 million bug bounty with Immunefi. Through the program, security researchers are incentivized to detect and report smart contract vulnerabilities within the Aave protocol to increase its robustness against potential attacks. Despite reaching a new all-time high of 28 million GHO in circulation, Aave's decentralized stablecoin has been trading 2-4% below its $1 peg since August due to its lack of holding demand. Borrowers can mint GHO using any token supported as collateral on Aave. The interest paid on GHO loans is defined by governance and is currently set between 2.13% and 3.05%. The problem is the lack of utility from holding GHO, in contrast to other stablecoins like Maker's DAI, which offers a savings rate of 5%. In this regard, Aave Grants is encouraging builders that can expand GHO demand and utility to apply for funding.

Polygon (MATIC)

Polygon's native token MATIC traded up 19.38% over the past month. Club Mahindra, a members-only chain of over 125 resorts in India and abroad, launched its first NFT collection on the Polygon blockchain, "Discover India." The collection comprises 25 AI-generated artworks showcasing the beauty of India. Each NFT is available to anyone with an Indian account or credit card, giving the buyer rights to a complimentary two-night holiday voucher for a Club Mahindra resort. On a different note, Polygon Labs and the Solana Foundation co-hosted a crypto policy bootcamp in Washington, D.C., on October 26. Founders, CEOs, investors, and other stakeholders in the space attended the bootcamp, where they learned from policy experts about the current state of crypto legislation in the U.S., different types of advocacy, and how to effectively tell stories about the value of blockchain.

Decentraland (MANA)

Decentraland (MANA) rose 17.50% amidst rising platform usage. About 3,410 unique wallet addresses interacted with Decentraland throughout October, a ~41% growth from September. As part of its monthly event themes initiative, the "AI World Fair" took place in Decentraland from October 25-27 to discuss ideas, issues, and opportunities around artificial intelligence. The event included keynotes from industry leaders like NVIDIA and crypto-native companies like SingularityNET. Regarding upcoming releases, "Social Login" will launch before year's end to enable users to log into Decentraland with their email, Twitter, or other social media accounts – without needing a digital wallet. This feature will help make Decentraland more accessible to a mainstream audience. It also points to a future where most users will not need to know they are interacting with crypto, which will be mainly invisible in the backend.

XRP Ledger (XRP)

XRP traded up 16.49% in the past month. On October 19, XRP registered its highest daily price gain in three months as the U.S. Securities and Exchange Commission (SEC) dropped securities violation charges against Ripple's top executives, Brad Garlinghouse and Chris Larsen. The decision came three months after a U.S. District Court judge deemed that the XRP token, by itself, was not a security under U.S. law and that "programmatic sales" (e.g., XRP sold on exchanges) did not constitute a securities offering.

Cardano (ADA)

Cardano's native token ADA traded up 15.55% over the past month. Despite its $10 billion market cap, Cardano had only 40.5k daily active users as of October 31, 2023, a fraction of Ethereum-compatible networks like Arbitrum (106k) and Polygon (~359k). To attract new users, Cardano must offer differentiated applications and bridge the education gap to interact with its ecosystem. In this regard, developer engagement will be crucial, as it is a leading indicator of value creation. According to Electric Capital’s Developer Report, Cardano had around 415 monthly active developers as of October 2023, down 24% from October 2022. On a separate note, the Cardano community’s flagship annual conference, Cardano Summit 2023, will take place from November 2 to 4.

Ethereum (ETH)

Ethereum rose 8.73% in October, underperforming the broader crypto market. In this regard, it's essential to draw a clear distinction between value and price. Value is driven by fundamentals, including cash flows, growth, and risk. On the other hand, price is driven by market sentiment, narratives about "fundamentals," and liquidity. Throughout the past few months, most of the narrative has concentrated on Bitcoin as a hedge against currency debasement and counterparty risk amidst the uncertain macro and geopolitical environment. We have also witnessed many users moving from Ethereum L1 to scaling solutions with their own token (except for Base), which may be a double-edged sword, even if they use ETH as a medium of exchange. Regardless of price performance, Ethereum fundamentals remain more robust than ever, with over 860k validators and $40 billion securing the network.

Strategies of the Month: October 2023

Every month, our research team will also present the ten best-performing strategies of the month in our product suite. With a data-driven approach, we highlight the most important developments and events causing price movements.

Figure 2: 30-Day Performance: Strategies of the Month vs. Traditional Asset Classes

Data Source: 21Shares Index Management Console and Yahoo Finance, from 29-Sep-2023 to 31-Oct-2023 (Close Price)

STAKE

The 21Shares Staking Basket Index ETP (STAKE) traded up 22.54% over the past month. STAKE seeks to track an index comprising the largest cryptoassets with institutional-grade support for staking. Staking is a process whereby investors, commonly referred to as validators, commit a portion of their cryptoassets (the “stake”) to secure a blockchain by confirming transactions – and gain access to a recurring value stream of native tokens to compensate them for their work. Staking is a core energy-friendly feature of Proof-of-Stake (PoS) blockchains, and each blockchain network has its own set of staking requirements. SOL is now the index’s largest constituent with a weight of 27.29% after its ~80% price increase during October.

KEYS

The 21Shares Bitwise Select 10 Large Cap Crypto ETP (KEYS) rose 21.42% over the past month. KEYS seeks to track the investment results of an index of the top 10 cryptoassets ranked by inflation-adjusted market capitalization. Because Bitcoin (69%) and Ethereum's (22%) weights in the index represent about 91%, the index's performance tends to be highly correlated with both assets, as was the case over this period. The next largest constituents are XRP (3.29%) and SOL (1.56%).

ABBA

The 21Shares Bitcoin Suisse Index ETP (ABBA) rose 20.77% over the past month. ABBA seeks to track the investment results of an index composed of Bitcoin and Ethereum based on market capitalizations. Investors should understand that Bitcoin and Ethereum serve different use cases and can complement each other in a portfolio. The former is positioned as a non-sovereign form of money, while the latter promises to be the foundational infrastructure for the new iteration of internet services.

HODLX

The 21Shares Crypto Basket 10 ETP (HODLX) traded up 20.63% over the past month. HODLX seeks to track the investment results of an index composed of the top 10 largest cryptoassets based on current market capitalization. The index's best-performing asset was SOL, which registered an ~80% performance, while the largest constituent is BTC, with a weight of 67%.  Bitcoin dominance (i.e., Bitcoin's market cap as a percentage of crypto's total market cap) is above 50%, suggesting that we are observing a “flight to quality” as Bitcoin outperforms traditional assets like equities and bonds.

MOON

The Sygnum Platform Winners Index ETP (MOON) rose 20.39% over the past month. MOON seeks to track the investment results of an index composed of the native tokens of the most prominent blockchain protocols, including only the largest network in a family of forks. MOON's weighting methodology goes beyond backward-looking metrics like market cap and liquidity. It also includes early and leading indicators of value creation in the underlying ecosystems, such as developer engagement and public interest via social media.

HODL

The 21Shares Crypto Basket Index ETP (HODL) traded up 19.33% over the past month. HODL seeks to track the investment results of an index of the top 5 cryptoassets ranked by the 2050 market capitalization. The 2050 market capitalization is calculated using a projected 2050 supply number and current prices. Bitcoin and Ethereum's weights are currently around 49% and 34%, while XRP is the third-largest constituent with a weight of ~8.6%. XRP experienced its highest daily return in three months on October 19 after the SEC dropped security violation charges against Ripple executives Brad Garlinghouse and Chris Larsen.

ALTS

The 21Shares Crypto Mid-Market Index ETP (ALTS) appreciated 14.00% over the past month. ALTS seeks to track the investment results of an index capturing the mid-cap portion of the cryptoasset market. BNB and XRP are the largest constituents of the index with weights of ~31% and ~27%, respectively. BNB underperformed the broader crypto market with a 5.53% performance, likely due to the regulatory scrutiny that Binance has been subjected to in the past months.

HODLV

The 21Shares Crypto Basket Equal Weight ETP (HODLV) appreciated 12.75% over the past month. HODLV tracks the investment results of an equally-weighted index composed of the top 5 largest cryptoassets based on market capitalization. The index’s best-performing asset was BTC, which appreciated 28.56% over the past month, followed by XRP, which registered a 16.49% month-over-month price increase.

BOLD

The 21Shares Bytetree BOLD ETP (BOLD) traded up 11.92% over the past month. BOLD offers volatility-managed exposure to Bitcoin and gold. Gold is the seminal store-of-value asset, used as money since the early days of civilization. Investors tend to buy gold during adverse macroeconomic conditions and inflationary environments. Gold is trading close to ~$2000/oz, registering a 7.37% performance in October when both stocks and bonds have been struggling. Even more impressive is that Bitcoin outperformed all these assets during the same period. Despite being considered a risk-on asset early on, Bitcoin is increasingly consolidating as a hedge against currency debasement and counterparty risk due to its programmed scarce supply and unique properties (neutral, international, and censorship-resistant).