Digital asset markets continued the upward trend into March of 2024. Observing monthly BTC closings below, we are undoubtedly smack in the middle of an extraordinary bull run for Bitcoin. Yet while BTC has exploded in value, the overall market excluding BTC and ETH lags behind, setting the stage for an extraordinary runup in crypto alts. Based on past cycles and BTC price behavior prior to halving events, we have reason to believe that BTC indeed has room to continue upward. Nonetheless, investment opportunities in the alts segments of the space have become increasingly enticing.

BTC All-Time Price Chart, Tradingview by jfo150
BTC vs. TOTAL3 monthly candles. TOTAL3 observes the Total Crypto Market Cap Excluding BTC and ETH

Memecoin mania

In one of the more notable top-signals we could imagine, the meme coin market has exploded in 2024. In the past month, the market capitalization of DOGE jumped from $12B to $20B. Dog token dogwifhat (WIF) on Solana had a market cap of $160M on January 1st, 2024; today, its market cap sits around $2.6B. A token called Book Of Meme (BOME) garnered a $1.5B market cap less than a single day after it launched. If this sounds ridiculous to you, it most certainly is.

Source: Tom Wanh, Dune

While signs of froth are abundant, there are some notable differences today from the last bull cycle. Whereas the last cycle was driven by NFT mints on a congested Ethereum network with high transaction fees, this cycle has been fueled by Solana’s lightning fast transaction speed for significantly lower costs. In other words, the barrier to entry is significantly lower for the “normie” user. Consider also that Solana has a sleek suite of mobile apps, like Phantom, which are certainly helpful for attracting more new users (See chart from Tom Wanh below). New user growth is the key for Solana’s success, and a low-cost network with easy rails for gambling on memecoins is what retail users love.

One of our favorite charts of the year deserves some preliminary explanation. BonkBot is a trading bot that you can chat with on the messenger app Telegram. It is derived from the BONK token, which notably has also jumped to a $1.5B market cap in less than 6 months this year. Anyway, using the BonkBot to make trades burns BONK tokens, which helps keep the BONK token deflationary as there is a set number of outstanding tokens that have been mostly distributed. Simply message @bonkbot_bot on telegram as you would a friend on any other messenger app. The Bot automatically sets up a wallet for you and asks for you to input some SOL. After that, paste a link for any Solana token from the website Birdeye.so, and you can choose to buy or sell. The bot then makes the transactions for you at high speeds and low costs.

While this might sound a bit complicated still, you would be shocked at how frictionless this experience has become relative to past crypto infrastructures. The result of this removal of friction, combined with the explosion of value in Solana meme tokens, is extraordinary. Behold:

Source: @bishara_crypto on X, Dune

The fact that a telegram messenger app can generate near $250M in trading volume in a single day is simply astonishing. It speaks to the ease of use of Solana, and how important that is for becoming a dominant blockchain. This is extremely notable. As an aside, consider Toncoin (TON), the native token created by Telegram. Until just recently, it had no useful utility due to Telegram’s cautiousness around creating a security. Nevertheless, the token has a $14B market cap, good for the 13th largest crypto token by market cap. The TON foundation, a decentralized entity attempting to separate itself from Telegram, has recently announced token distributions, a bullish sign for the token itself. Telegram is an end-to-end encrypted messaging app, with a global user base of almost a billion. How might TON fare when Telegram figures out how to deliver frictionless value transfer to a billion users?

Telegram’s native token is interesting for the same reasons that Solana is clearly the dominant retail chain currently. These networks have succeeded in capturing a lot of users. Despite all of the efforts by Optimism, Arbitrum, Base, Polygon, and any other Ethereum-alternative networks, Solana (and oddly, Telegram, to an extent) maintains the top network for retail use. All of these networks faced the challenge of “how do you decentralize your system more”? All of them, except for Solana, spent time and effort focusing on solving that challenge. Solana on the other hand focused on retail: providing apps that are easy to use in order to fuel high consumption of the network.

So far the strategy has worked, although Ethereum-based chains still far outpace Solana based on fees generated. Solana is generating around $3-4M per day at these peak usage levels currently, which only puts it between Uniswap and Bitcoin in terms of fees it generates. Ethereum remains dominant here, and while Solana is running away in terms of usage and number of processed transactions, the great majority of value is being transacted upon Ethereum-compatible networks.

Source: cryptofees.info

This is significant, as Solana needs to ultimately generate revenue in order for it to be viable as a stable and sufficiently decentralized network. If validators don’t achieve a certain profit margin, or the economics of staking tokens makes more sense elsewhere, Solana could slowly bleed its market dominance of activity, since loss of validation distribution would lead to a degraded user experience. This is an unlikely scenario, considering Solana has weathered so many significant storms and still remains afloat today. In our view, it will maintain its dominance as one of the most important networks in the crypto ecosystem both for its resilience and its penchant for catering to users.

AI x Crypto Narratives

The other dominant narrative of the past few months worth noting is with protocols aiming to combine the advances of AI with novel cryptoeconomic primitives. Bittensor (TAO) at $4.4B, Render (RNDR) at $4.6B, Fetch.ai (FET) at $3B. These are some of the protocols underpinning what's become known as the “DePIN” category, or decentralized physical infrastructure networks. This is an area that we have been studying closely in many of our recent articles.

In our view, this market is significantly overvalued based purely on the quality of outputs. As mentioned in Pt. I of our research on Decentralized Intelligence Systems, “There are around 50 active validators and just over a thousand miners working to provide computational resources to underpin the protocol. This is while the market capitalization of the protocol’s token (shown prominently on their stats page) nears $4B USD.“

TAO is a seriously ambitious and important project in our view; however the current usage statistics of the network do not justify its valuation. This goes for the large majority of DePIN tokens thus far. The hype around these narratives is simply too great for the actual revenue that these protocols are generating. Unit Zero Labs prefers to maintain investments in tokens that accrue value from its usage. In theory, as the Bittensor models produced from the system become more widely available and usable, TAO should accrue value from that usage. However, there is simply not enough usage in our mind to formally justify a market capitalization of over $4B currently.

Into the Spring

We do think the market is suffering from some overexuberance in various corners, as mentioned. Meme tokens are gaining market caps greater than the biggest crypto businesses in the ecosystem in a matter of days, and AI-protocols are achieving billion dollar valuations simply for operating within the category. Coinbase inches closer to the top 10 apps in the US app store. These are extremely notable signs of a market top.

While we maintain caution and try to take profits where possible (i.e. on dog & memecoins), we do expect some significant upward growth to continue throughout the year for the core majors BTC, ETH, and SOL. There are simply too many compelling narratives for the overall crypto asset market for a significant slowdown, and the price effects of April’s Bitcoin halving event have not quite been felt yet. DOGE has a $20B market cap currently, however at its peak in 2022 it breached $80B. There may still be room yet for exuberance.

This article was posted here on t2 first, but is also available on our research site. Our research is free, but market reports (like this one) are for premium subscribers.

Disclaimer: Unit Zero Labs may own assets mentioned in our articles and research. This is not financial advice.

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