From ETH to SOL: Why Will All L1s Ultimately Lose to Bitcoin?

Original Title: Can L1s Compete Against BTC as Cryptomoney?

Original Author: AvgJoesCrypto

Original Source:

Repost: Mars Finance

Editor’s Note: Recently, Haseeb Qureshi, a well-known partner at Dragonfly, published a lengthy article rejecting cynicism and embracing exponential thinking, which unexpectedly brought the community’s discussion back to the core question: How much value do L1s really have left? The following content is excerpted from @MessariCrypto’s upcoming “The Crypto Theses 2026,” organized by Odaily Planet Daily.

Cryptocurrencies drive the entire industry

Refocusing the discussion on “cryptocurrency” itself is extremely important, because most of the capital in the crypto industry is ultimately seeking exposure to “monetized assets.” The current total crypto market cap is $3.26 trillion, with BTC accounting for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, about $0.83 trillion is concentrated in various L1 public chains. In other words, about $2.63 trillion, or approximately 81% of the entire market’s funds, are invested in assets that the market already views as money or believes could achieve monetary premium in the future.

In this context, whether you are a trader, investor, capital manager, or developer, it is crucial to understand how the market grants or withdraws monetary premium. In the crypto industry, nothing drives valuation changes more than whether the market is willing to treat an asset as “money.” Therefore, predicting which assets will gain monetary premium in the future is arguably the most important variable when building a portfolio.

So far, our main focus has been BTC, but it is also necessary to discuss those “may or may not be money” L1 assets among the remaining $0.83 trillion. As mentioned earlier, we expect BTC to continue absorbing market share from gold and other non-sovereign stores of value in the coming years. But this also raises a question: How much space is left for L1s? When the tide rises, do all boats (assets) rise (benefit)? Or, as BTC catches up to gold, will it siphon off some of the monetary premium from L1 public chains?

To answer these questions, we first need to look at the current L1 valuation landscape. The top four L1s by market cap—ETH ($361.15 billion), XRP ($130.11 billion), BNB ($120.64 billion), and SOL ($74.68 billion)—have a combined market cap of $686.58 billion, accounting for 83% of the entire L1 sector. Beyond these four, the market cap gap is significant (for example, TRX is $26.67 billion), but the tail end is still sizable. L1s ranked outside the top 15 still have a total market cap of $18.06 billion, accounting for 2% of the total L1 market cap.

More importantly, L1 market cap does not equate to pure “monetary premium.” There are three main L1 valuation frameworks:

(i) Monetary Premium

(ii) Real Economic Value (REV)

(iii) Economic Security Demand

Therefore, a project’s market cap is not determined solely by the market viewing it as money.

L1 valuation is driven by monetary premium, not revenue

Although there are multiple valuation frameworks, the market is increasingly inclined to evaluate L1s from the perspective of “monetary premium” rather than “revenue-driven” angles. Over the past few years, all L1s with a market cap over $1 billion have maintained an overall P/E ratio of about 150x to 200x. But this aggregate data is misleading because it includes TRON and Hyperliquid. In the past 30 days, TRX and HYPE contributed 70% of this group’s revenue but only 4% of the total market cap.

After excluding these two outliers, the real story emerges. Despite falling revenue, L1 valuations are rising. The adjusted P/E ratio shows a clear upward trend:

· November 30, 2021: 40x

· November 30, 2022: 212x

· November 30, 2023: 137x

· November 30, 2024: 205x

· November 30, 2025: 536x

From the REV perspective, one might think the market is pricing in future revenue growth. However, this explanation does not hold, as in the same group (still excluding TRON and Hyperliquid), L1 revenue has been declining almost every year:

· 2021: $12.33 billion

· 2022: $4.89 billion (YoY -60%)

· 2023: $2.72 billion (YoY -44%)

· 2024: $3.55 billion (YoY +31%)

· 2025: $1.70 billion annualized (YoY -52%)

In our view, the simplest and most direct explanation is: these valuations are driven primarily by monetary premium, not current or future revenue.

L1s have consistently underperformed Bitcoin

If L1 valuation is mainly driven by the market’s expectation of their monetary premium, the next question is: What shapes these expectations? One simple method is to compare their performance to BTC. If changes in monetary premium mainly reflect BTC’s trend, these assets should have a similar “beta” to BTC; if the monetary premium comes from each L1’s unique factors, their correlation to BTC should be weaker and performance more distinctive.

As representatives of L1s, we selected the top ten L1 tokens by market cap (excluding HYPE) and tracked their performance relative to BTC since December 1, 2022. These ten assets represent about 94% of L1 market cap and are highly representative. During this period, eight of the assets underperformed BTC in absolute returns, with six lagging by more than 40%. Only two assets outperformed BTC: XRP and SOL. But XRP’s excess return was only 3%, and given its history of being dominated by retail funds, we won’t overinterpret it. The only asset with significant excess return was SOL, outperforming BTC by 87%.

However, a deeper breakdown shows that SOL’s “outperformance” may not be as strong as it seems. During the same period when SOL outperformed BTC by 87%, Solana’s ecosystem fundamentals exploded exponentially: DeFi TVL grew 2,988%, fees increased 1,983%, and DEX volume surged 3,301%. By any reasonable standard, Solana’s ecosystem has expanded 20 to 30 times since the end of 2022, but SOL’s price only outperformed BTC by 87%.

Please read that sentence again.

To achieve truly significant excess returns against BTC, an L1 doesn’t need ecosystem growth of 200% or 300%—it needs growth of 2,000%-3,000% just to barely eke out a few dozen percentage points of excess performance.

Taken together, our judgment is: While the market is still pricing L1s with the expectation that they “may gain monetary premium in the future,” confidence in these expectations is quietly fading. Meanwhile, the market’s monetary premium for BTC as “cryptocurrency” remains undiminished; in fact, the lead of BTC over various L1s is steadily widening.

Although cryptocurrency itself does not need fees or revenue to support valuation, these metrics are crucial for L1s. Unlike BTC, L1 narratives depend on building ecosystems (applications, users, throughput, economic activity, etc.) to support their token value. However, if an L1’s ecosystem is showing year-over-year decline (partly reflected by falling revenue and fees), it loses its only competitive edge against BTC. Without real economic growth, its “cryptocurrency-ization” story will become increasingly hard for the market to accept.

Looking forward

Looking ahead, we do not believe this trend will reverse in 2026 or for a longer time. With a few possible exceptions, we expect the L1 sector to continue losing market share, further squeezed by BTC. Because their valuations mainly rely on expectations of future monetary premium, as the market increasingly recognizes BTC as having the strongest claim to the “cryptocurrency” narrative, L1 valuations will continue to contract. Although BTC will also face challenges in the coming years, those issues remain too distant and too variable to provide meaningful support for the monetary premium of competing L1s.

For L1s, the bar to prove their value has been raised. Their narratives can no longer be attractive enough compared to BTC, nor can they rely on market hype to sustain valuations long-term. The era when “we may become money in the future” could support trillion-dollar market caps is coming to an end. Investors now have a decade of data to prove: L1 monetary premium can only be maintained when there is extreme ecosystem growth. Once growth stagnates, L1s will continue to underperform BTC, and their monetary premium will dissipate.