Source: TradingView, CNBC, Bloomberg, Messari
Narratives Come and Go
Following the Easter and Passover holidays, it’s a good time to talk about narratives. Pretty much any narrative, regardless of how ludicrous the premise, can become reality if enough people tell the story.
For example, is Bitcoin “digital gold”? If enough people say it over and over again, eventually it just becomes accepted. But 2025 has thrown this narrative for a loop with gold rising almost 30% while BTC is down almost 10%. Clearly, BTC can’t be digital gold if they are moving in such opposite directions, right?
OR
Maybe we just need to zoom out. Over the past year, BTC and gold are up the exact same amount, and the recent outperformance by gold is just a natural catch-up from the BTC Trump pump last year. As Mark Yusko often says, “alligator jaws must close”.
Narratives are malleable.
Source: TradingView
Similarly, the narrative for years in crypto has been about “Fat protocol thesis” - that all of these unused Layer-1 smart contract protocols are going to have such powerful network effects, and therefore must have tons of value according to Metcalf’s law. It fueled a boom in VC funding.
OR
Maybe the simplest explanation has always been correct. Which is that for something to have value, it must either be useful (utility) or have cash flows (financial). And the ETH, SOL, ADA, AVAX, name your favorite L1 from hundreds of choices of nonsense is just flat out wrong, and ultimately, the projects that actually generate real revenue from real customers will win out.
It’s still too early to tell for sure. But the crypto market is finally starting to value financial cash flows and fundamentals. Last week, Bitcoin (+2%), Ethereum (flat) and Solana (+4%) barely moved. Other Layer-1 protocols barely moved as well. But there were some big week-over-week movers with one thing in common. Revenues.
For example:
- Maple (MPL / SYRUP +40% W-o-W) as TVL crossed $1 billion, and revenue continues to grow in line with its loan portfolio.
- Hyperliquid (HYPE +17% W-o-W and up over 80% from the recent lows) as HYPE continues to take market share from other Perp exchanges (like Binance), generating $1-2 million per day in revenue, with over 90% of it being used to buyback tokens in the open market.
- Raydium (RAY +14% W-o-W) as Raydium expands its offering to compete with pump.fun on both minting, bonding and trading of newly issued tokens on Solana. This new offering could (in our opinion) triple revenue.
While one week is not a narrative, the tides are definitely turning in crypto. Just like European equity investors are finally seeing the light of day after a decade of underperforming U.S. tech stocks, DeFi and other value tokens in crypto may be seeing a similar divergence taking place in real-time. If this persists, a new important role for crypto projects will soon be investor relations.
The True Legacy of the Gensler-Era SEC Regime - Forcing Startups to Abandon Revenue
Written by Christopher MacPherson, Analyst at Arca
As an analyst in this industry, I devote my career to furthering the potential massive benefits that blockchains and digital assets will provide to our ever-changing world. I take that responsibility very seriously because most people outside the industry view it as some type of dark web money grab opportunity instead of what it really stands for. It is my greatest passion because its potential benefits to the world are not just speculative hope. The benefits are already positively impacting many people's lives, making it worthwhile to dedicate my life's work to them.
The shocking collapse of FTX set our industry back several years in terms of public perception. Ironically, if FTX's business had operated on a blockchain, the fraud would have been detected immediately. The situation worsened due to the SEC’s relentless anti-crypto campaign, further damaging the industry's reputation. Therefore, we believe it is essential to clearly define the significant and lasting harm caused by the Gensler-era SEC regime. While we would prefer to move past what we refer to as the “Middle Ages of crypto’s past,” understanding this context is crucial for fully grasping the current and future state of the industry.
A major misconception about the SEC under Chair Gary Gensler is that the main harm comes from the
arbitrary and capricious lawsuits the SEC levied against the most successful, good-faith actors such as Coinbase, Consensys, Kraken, and Opensea. In reality, all of these cases either resulted in embarrassing losses for the SEC or were time-consuming/expensive stalemates paid for by the US taxpayer. Coinbase has filed a FOIA request to determine how much taxpayer money has been spent during the SEC's aggressive stance against the crypto industry. The Blockchain Association estimates that the total legal fees incurred by our industry to defend itself amount to around $400 million.
The most impactful and lasting damage did not take place in the courts. It took place in WeWorks and garage offices, where startup founders cultivate the innovations that define the U.S.’s dominance in tech today.
The unrelenting threats from Former Chair Gensler directed at startup founders destroyed the ability for projects to launch digital assets with fundamental underlying value. If everything with fundamental value could be classified as a security—or worse, lead to jail time—then the SEC seems to be promoting the opposite: valueless, pointless, and frivolous assets. As a result, we have seen a surge in the issuance of worthless tokens, creating a nonsensical market structure driven by short-term hype cycles. This has led to a community of advocates who have been misled into believing that tokens with fundamental value are worthless, while tokens that openly state they have no value are viewed as valuable.
There is no ability to consistently be successful in long-term fundamental investing in a market environment where:
- Profit is generated by quickly clicking the buy button for a dog-themed memecoin, following a paid Twitter influencer's post just 15 seconds prior.
- Investing in the most innovative, profitable, and growing projects can lead to lost profits.
Since Arca was founded in 2018, our firm, along with many other dedicated participants, has focused on using our voice in the industry to educate others. We believe that fostering the growth of crypto's ethos requires a market composed of assets that hold real value. Our vision is to see blockchains become essential infrastructure in the long term. However, this vision cannot be realized if the capital markets that support it are filled with assets that carry no long-term value.
That is why the irony of former Chair Gensler’s statements last week on
CNBC was particularly gaslighting. He made the claim that “99% or 100% of crypto tokens trade on sentiment and very little on fundamentals.”
This is a purposefully dishonest mischaracterization of our market. Analytics platforms such as Artemis, Dune Dashboard, Token Terminal, Blockworks Research, The Block Research, The Tie, and many others have created very successful startups based on the fundamental KPI metrics they provide customers. Former Chair Gensler’s anti-crypto crusade, and the real threat of jail time, is the primary reason crypto assets do not trade more heavily on their fundamentals. Additionally, former Chair Gensler is very familiar with crypto assets that hold little to no value. Some of former Chair Gensler’s lectures on teaching Blockchain Technology at MIT can be viewed on
YouTube. This includes a Fall 2018 lecture where Former Chair Gensler talks about his affinity for the blockchain Algorand. Algorand launched the ALGO token in June 2019 at $2.40 and now trades at $0.19 (-91.7%).
Throughout this period, we directly worked with dozens of crypto founders, and a recurring theme emerged in our discussions: these teams were eager to launch their tokens, as it was essential for the functionality of their projects. However, they faced significant legal hurdles; their lawyers strongly advised against launching a token that had real value accrual due to the risk of being pursued and sued by the SEC. While these teams wanted to work within regulatory guidelines by registering their tokens as securities, numerous aspects of the current security registration process are quite literally impossible for crypto projects to adhere to. Additionally, the financial burden on a new tech startup with limited funding is immense, as the legal costs to navigate this process can range from $2 million to $4 million.
What resulted for 2.5 years was thousands of token launches where the asset was not designed to have underlying value correlated to the success of the project (fundamental tokenomics). This is the exact opposite of what attracted me and most others to the world of crypto beyond Bitcoin. For investors, ‘altcoins’ were supposed to be the common man’s outlet to get exposure to the success of the most innovative tech startups in the world; investments that are typically gated by access and accredited investor laws. For founders that don’t have an MIT/Harvard/Stanford pedigree, altcoins were supposed to be a superior way to fundraise for startup ideas, based on merit without preconceived bias. This dynamic caused crypto investors to mostly forget what real value is and its importance to long-term investing in financial markets. This can be seen in the short, narrative-driven hype cycles where assets traded up sharply for little reason, and then down sharply when hype-driven momentum faded, from December 2022 to today.
The most popular themes for tokens during this period became:
- Memecoins: Assets cannot be misconstrued as securities if the point of the asset class is to release assets that tell you there is zero underlying value to the token. This remains the most heavily traded sector despite being extremely prone to fraud, insider trading, and overall a tool for financial nihilism instead of fundamental, long-term investing. A perfect characterization of what I mean when I say people do not understand our industry is President Trump’s choice to launch a memecoin in Fall 2024 instead of an asset with fundamental value. This could have been a seminal moment for our industry to take back what the SEC robbed from us, but instead, it further validated the madness. TRUMP token ran up to a mind-boggling $77 billion fully diluted valuation in its first two days of trading, and now trades at $8.37 (-89% from the top).
- Rewards Based Tokens: When token design only focuses on supply-side design, meaning how users can earn the token, the token follows the same path almost every single time: Users become aware of a token that can be earned by completing some action -> Users ‘farm’ the product at an increasing rate to gain more and more of the token -> narratives appear about how popular products are becoming, and how their potential to continue the growth in usership will continue to grow -> users and others buy the token with the expectation of massive potential growth and value creation -> momentum inevitably dies down at some point in time -> investors and users recognize that the value of the token is now extremely inflated on a false premise of value creation -> every token holder scrambles to hit the exit -> token price crashes down violently, hurting honest intentioned investors that believe in the project long-term (typically that belief is based on false premises) -> the vicious cycle continues on to the new hot product. It sounds like what it is: a predatory pump-and-dump cycle. It's always the same story with a new catch phrase. Whether it was “Move To Earn” in 2022 or the more recent "Tap To Earn" fad in Summer 2024, where users would earn tokens by simply tapping their phone screen over and over, it's the same pump and dump loop. Some institutional funds even put out thesis papers on “Why Tap To Earn is the Future of Gaming".
- Governance Tokens: By holding the token, you may be able to vote on some decisions of the protocol (ongoing debate as to what the scope of governance should be). Most governance has been “decentralization theater” meaning that the teams and large institutional investors (VCs and Liquid Funds) often have enough of the token supply (1 token held = 1 vote) to ensure that their preference is the winner. The vast majority of the holders are then holding a token that has no value. Uniswap, the largest decentralized exchange in crypto, is the best example of bad-faith governance. The UNI token, as well as other governance tokens as a whole, have significantly underperformed for this reason. Even for protocols that honor governance fairly, it has become clear that billion-dollar ventures do not run well when everyone who owns a token has a vote. If Coca-Cola’s most important, challenging, and complex decisions as a beverage conglomerate were decided by votes from any person who drank a Coca-Cola that year, the business would likely be bankrupt.
We see some improvement in this dynamic since the Trump administration entered office. Still, fundamental misunderstandings of how an asset class should be valued take a long time and large amounts of mental rewiring to reverse. We will continue to focus our time on researching the protocols that do provide real value to the world.
We have been spending time looking at two protocols in particular: Hyperliquid and Raydium. We will be back next week with a more detailed analysis of these two tokens, and the fundamental investment outlook.
