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

Original Title: *Can L1s Compete Against BTC as Cryptomoney?

Original Author: AvgJoesCrypto, Messari

Original Translation: Dingdang, Odaily Planet Daily

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

Cryptocurrency Drives the Entire Industry

Refocusing the discussion on “cryptocurrency” itself is crucial, because most capital in the crypto industry is ultimately seeking exposure to “monetized assets.” Currently, the total crypto market cap is $3.26 trillion, of which BTC accounts for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, about $0.83 trillion is concentrated in various L1 public blockchains. In other words, about $2.63 trillion, approximately 81% of the entire market, is invested in assets that the market already views as money or believes may gain monetary premium in the future.

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

So far, we’ve mainly focused on BTC, but it’s also necessary to discuss the L1 assets—worth $0.83 trillion—that “may or may not be money.” As mentioned above, we expect BTC to continue to absorb market share from gold and other non-sovereign stores of value in the coming years. But this raises a question: How much space is left for L1s? When the tide rises, do all boats (assets) rise (benefit)? Or will BTC, as it catches up with gold, siphon off some monetary premium from L1s?

To answer these questions, we first need to look at the current valuation landscape of L1s. 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. After these top four, there’s a significant drop (for example, TRX at $26.67 billion), but the tail is still substantial. L1s outside the top 15 still have a combined market cap of $18.06 billion, making up 2% of the total L1 market cap.

More importantly, L1 market cap does not equate to pure “monetary premium.” There are three main valuation frameworks for L1s:

(i) Monetary Premium

(ii) Real Economic Value (REV)

(iii) Economic Security Demand

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

L1 Valuations Driven by Monetary Premium, Not Income

Although multiple valuation frameworks exist, the market is increasingly inclined to evaluate L1s from the perspective of “monetary premium” rather than “income-driven” metrics. Over the past few years, all L1s with a market cap above $1 billion have maintained an overall P/E ratio of roughly 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 income but only account for 4% of the total market cap.

Once these outliers are excluded, the real story emerges. Despite falling income, 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

If interpreted from the REV perspective, one might think the market is pricing in future income growth. However, this explanation does not hold, because within the same group (still excluding TRON and Hyperliquid), L1 income has declined 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: Annualized $1.70 billion (YoY -52%)

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

L1s Have Consistently Underperformed Bitcoin

If L1 valuations are primarily driven by the market’s anticipation of their monetary premium, the next question is: what shapes this expectation? One simple approach is to compare their performance with BTC. If changes in monetary premium are mostly a reflection of BTC’s movement, then these assets’ performance should be similar to BTC’s “beta”; if monetary premium comes from each L1’s unique factors, correlation with BTC should be weaker and performance more idiosyncratic.

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 account for about 94% of the L1 market cap, making them highly representative. During this period, eight out of ten 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 retail-driven, we won’t overinterpret it. The only asset with significant excess return is SOL, outperforming BTC by 87%.

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

Read that sentence again.

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

In summary, our judgment is: While the market is still pricing L1s based on expectations of “potential future monetary premium,” confidence in these expectations is quietly fading. Meanwhile, the market’s confidence in BTC’s monetary premium as “cryptocurrency” remains unshaken—in fact, BTC’s lead over L1s is continuing to widen.

Although cryptocurrencies themselves don’t need fees or revenue to support their valuations, these metrics are crucial for L1s. Unlike BTC, the L1 narrative depends on building ecosystems (applications, users, throughput, economic activity, etc.) to support token value. However, if an L1’s ecosystem is declining year over year (as reflected by falling revenue and fees), it loses its only competitive edge over BTC. Without real economic growth, its “cryptomoney” story becomes increasingly hard for the market to accept.

Looking Ahead

Looking ahead, we do not believe this trend will reverse in 2026 or beyond. With a few possible exceptions, we expect the L1 sector to continue losing market share, squeezed further by BTC. As their valuations depend primarily on anticipated future monetary premium, as the market increasingly recognizes BTC as the strongest narrative for “cryptocurrency,” L1 valuations will continue to shrink. Although BTC will face challenges in the coming years, those problems are still too distant and variable to provide solid support for monetary premium in competing L1s.

For L1s, the bar for proving their value has been raised. Their narratives are no longer compelling enough compared to BTC, nor can they depend on market hype to support valuations long-term. The era when “we might become money in the future” could support trillion-dollar market caps is coming to a close. Investors now have a decade’s worth of data proving: L1 monetary premium can only be sustained amid extreme ecosystem growth. Once growth stalls, L1s will continue to underperform BTC, and their monetary premium will dissipate accordingly.

Source: Odaily Planet Daily