Grayscale 2025 Q1 Strict Selection: 20 Tokens with high rise potential

The assets added in Q1 2025 include HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS.

Article source: Grayscale Research

Article Compilation: Golem, Odaily Planet Daily

Summary:

The crypto market has risen sharply in Q4 2024, with the FTSE/Grayscale Crypto Sectors Index showing strong market performance. The gains largely reflect the market's positive reaction to the results of the US election.
The competition in the smart contract platform field remains fierce. The price performance of the leading player Ethereum in this field lags behind Solana, the second largest competitor in terms of market value. Investors are also paying more attention to other Layer 1 networks, such as Sui and The Open Network (TON).
Grayscale Research has updated its Top 20 token list. This list represents diverse assets in the cryptocurrency industry that may have high potential in the next quarter. The newly added assets in Q1 2025 include HYPE, ENA, VIRTUAL, JUP, JTO, and GRASS. All assets in the Top 20 list have high price volatility and should be considered high risk.

Grayscale Crypto Sectors Index

Grayscale Crypto Sectors provides a comprehensive framework for understanding the scope of investable digital assets and how they relate to the underlying technology. Based on this framework, and in partnership with FTSE Russell, Grayscale developed the FTSE Grayscale Crypto Sectors Index Series to measure and monitor crypto assets (Figure 1). Grayscale Research incorporates the index into its analysis of the digital asset market.

Cryptocurrency valuations soared in the fourth quarter of 2024, mainly due to the market's positive response to the outcome of the US election. According to the Cryptocurrency Sector Market Index (CSMI), the industry's total market capitalization increased from $1 trillion to $3 trillion this quarter. Figure 2 compares the total market capitalization of cryptocurrencies with various traditional public and private market asset classes. For example, the current market value of the digital asset industry is roughly equivalent to the market value of the global inflation-linked bond market, more than twice the US high-yield bond market, but still much lower than the global hedge fund industry or the Japanese stock market.

Due to the increased valuation, many of the new tokens meet the inclusion criteria for the Grayscale Crypto Sectors framework, which requires a minimum market cap of $100 million for most tokens. Rebalanced this quarter, Grayscale added 63 new assets to the index series, now including a total of 283 tokens. The consumer and culture sectors added the most new tokens, reflecting the continued strong returns of the meme coin and the appreciation of various assets related to gaming and social media.

The largest addition to Crypto Sectors by market capitalization is Mantle, an Ethereum Layer 2 protocol that has now met minimum liquidity requirements (see here for more details on the inclusion criteria for the Grayscale Index).

Smart Contract Platform Competition

The smart contract platform sector may be the most competitive sub-market in the digital asset industry. Although 2024 was a milestone year for the leader in this field, Ethereum, as it obtained approval from the US exchange-traded product (ETP) and underwent significant upgrades, Ethereum's performance is not as good as some competitors, such as Solana, which is the second-largest asset in this field by market value. Investors are also paying attention to other L1 networks, including high-performance blockchains such as Sui, and the blockchain TON integrated with the Telegram platform.

When designing the infrastructure for application developers, architects of smart contract blockchains face various design choices. These design choices affect the three factors that make up the 'blockchain trilemma': network scalability, network security, and network decentralization. For example, prioritizing scalability often manifests as 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). These design choices lead to different block times, transaction throughputs, and average transaction fees (Figure 3).

Regardless of the design choices and the advantages and disadvantages of the network, the value of a smart contract platform is derived from its generated network fee revenue. Although other metrics such as total TVL are also important, fee revenue can be seen as the primary driver of token value accumulation in this market segment (related reading: The Battle of Value in Smart Contract Platforms).

As shown in Figure 4, there is a statistical relationship between the fee income of the smart contract platform and the market capitalization. The greater the network's ability to generate fee revenue, the greater the network's ability to pass value to the network in the form of token burns or staking rewards. This quarter, Grayscale Research's list of the Top 20 tokens includes a number of smart contract platform tokens: ETH, SOL, SUI, and OP.

List of Grayscale Research Top 20 Tokens

Every quarter, the Grayscale Research team analyzes hundreds of digital assets to provide information for the rebalancing process of the FTSE/Grayscale Crypto Sectors series index. Following this process, Grayscale Research generates a list of the top 20 assets within the Crypto Sectors. The top 20 represent diversified assets across Crypto Sectors, and these assets may have high potential in the coming quarter (Figure 4). The selection of this list combines a range of factors, including network growth/adoption, upcoming catalysts, sustainability of fundamentals, token valuation, token supply inflation, and potential tail risks.

In Q1 2025, Grayscale will focus on tokens that are at least related to one of the following three core market themes:

the U.S. election and its potential impact on industry regulation, particularly in areas such as decentralized finance (DeFi) and staking;

The continuous breakthrough of decentralized AI technology and the use of AI agents in blockchain;

The growth of the Solana ecosystem.

Based on these themes, the following six assets were added to the Top 20 list for Q1 2025:

Hyperliquid (HYPE): Hyperliquid is an L1 blockchain designed to support on-chain financial applications. Its main application is a decentralized exchange (DEX) for perpetual futures, with a fully on-chain but order book.
Ethena (ENA): The Ethena protocol has evolved into a new stablecoin, USDe, which is primarily secured by hedged positions in Bitcoin and Ethereum. Specifically, the protocol holds long positions in Bitcoin and Ether as well as short positions in perpetual futures contracts for the same asset. The staked version of the token provides yield through the difference between the spot and futures prices.
Virtual Protocol (VIRTUAL): Virtual Protocol is a platform for creating AI agents on the Ethereum L2 network base. These AI agents are designed to mimic human decision-making and perform tasks autonomously. The platform allows for the creation and co-ownership of tokenized AI agents that can interact with their environment and other users.
Jupiter (JUP): Jupiter is the top DEX aggregator on Solana and has the highest TVL in the network. As retail traders increasingly enter the crypto market through Solana, and speculation around Solana-based memecoin and AI proxy tokens intensifies, we believe Jupiter is well positioned to capitalize on this growing market.
Jito (JTO): Jito is a liquidity protocol on Solana. Jito has seen significant adoption in the past year and has the best financial performance in the cryptocurrency field, with revenue exceeding $550 million in 2024.
Grass (GRASS): Grass is a decentralized data network that rewards users for sharing unused internet bandwidth through a Chrome extension. This bandwidth is used to fetch online data, which is then sold to AI companies and developers for training machine learning models, effectively performing web data crawling while compensating users.

Note: The shading indicates new tokens for the upcoming quarter (Q1 2025). "*" denotes the underlying sector assets that are not included in the Crypto Sectors Index. Source: Artemis, Grayscale Investments. Data as of December 20, 2024 is for reference only. Assets are subject to change. Assets are subject to change. Grayscale and its affiliates and customers may hold positions in the digital assets discussed herein. All Top 20 assets have high price volatility and should be considered high-risk assets.

In addition to the new themes mentioned above, Grayscale remains bullish on themes from previous quarters, such as Ethereum scaling solutions, tokenization, and decentralized physical infrastructure (DePIN). These themes continue to be reflected through protocols that have returned to the Top 20, such as Optimism, Chainlink, and Helium.

This quarter, we removed Celo from the Top 20. Grayscale Research remains bullish on these projects and considers them to be important components of the crypto ecosystem. However, the revised Top 20 list may offer more attractive venture capital returns in the next 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. In addition, all assets in the Top 20 are highly volatile and should be considered high-risk, making them not suitable for all investors. Given the risks of the asset class, any investment in digital assets should be considered in the context of a portfolio and taking into account the investor's financial objectives.