The List of “Investable” Tokens Is Very Short

BlackRock recently noted that during the most destabilizing events of the last 5 years, including past U.S.-Iran escalations, COVID, the American regional banking crisis, and global tariffs, Bitcoin has largely shown behavior that neither the S&P 500 nor gold has replicated.

The pattern used to be clear: in moments of systemic stress, Bitcoin may initially face pressure, but then it recovers, and often goes beyond. That has not been the case this time around, at least thus far.

Meanwhile, the rest of the digital assets market (sans Bitcoin) remains just as lifeless. As we’ve been pointing out for years (and again last week at Arca’s FO256 conference), there is a major disconnect between the extremely positive news flow on blockchain adoption and the prices of blockchain-based assets. A big reason for this is that this industry (exchanges, ETF providers, market makers) is built around the trading of Bitcoin, and continues to force-feed this narrative, even though Bitcoin itself has literally nothing to do with the 3 areas where blockchain is growing the fastest:

• Stablecoin growth
• DeFi growth
• Tokenization of Real-World Assets (RWA) growth

If you want to express a “long blockchain growth” theme, and all you own is BTC, that’s the equivalent of trying to be “long gambling” by investing in the 3-card monte guy in Times Square.

That said, there really isn’t an easy answer to being “long blockchain growth.” Mike Ippolito at Blockworks summarized this in a recent tweet thread, highlighting how big a problem token investing is right now. In conclusion:

The whole thread is good, but this last part is most important.

Arca, for example, has one of the longest-running liquid token funds, and we think less than 20 tokens are even part of the investable universe, if that. Very few of the token issuers, exchanges, or VCs ever ask what it is a liquid fund wants to see to make a token investable. They don’t seem to care. The goal seems to be only to issue the token, not to make it valuable. And unfortunately, there are no investment banks or independent market makers in this industry to keep them honest, so the same pattern keeps repeating.

The exchanges are the worst culprits. An “everything exchange” doesn’t work when you kill all your customers with terrible investment products and try to sell the whole industry as one giant “macro trade.”

What do we mean by “investable”?

Let’s think of the token landscape like a quadrant.

• There are at most 20 companies in quadrant 1 (top left), where the project or company is achieving some success, and the token was designed properly to capture value from that success. Not all of these are necessarily good assets to own, as some trade at ludicrous valuations, but at least there is a chance to tie the success of the project to investment gains. The list above is not exhaustive, and is obviously subjective, but those are at least the obvious ones.
  
  
• There are more, but still not a ton, in quadrant 3 (bottom left), where the project or company is achieving some success, but the token is designed incredibly poorly. I can understand taking a flyer on these, as maybe they will fix the token one day, or maybe the project will grow 100x to make their token worth something, but it's really hard to keep betting on tokens that capture little to no economic value from the project's current growth. Chainlink (LINK) and Ondo (ONDO) are the best examples of this group, whereby the projects are having undeniable success, but the token is absolutely irrelevant to the project and its growth. Again, this list is not exhaustive, but it gives you an idea.
  
  
• I couldn't come up with a lot of examples in quadrant 2 (top right), where the company or project is trying to do the right thing for token holders but has just failed miserably as a business. I’m sure there are more.
  
  
• Which leaves us to quadrant 4 (bottom right), where the project is both floundering and the token never had a chance of any real success in the first place. This box would have millions of tokens in it. The majority of tokens reside here. I really don't understand how these stay afloat, or why they haven’t been delisted by exchanges yet. If a project has no revenues, no users, no growth, and the token captures no economic value (no financial or utility value), how or why does anyone own this other than because they are being potentially misled by the exchanges and market makers that list and trade these? There are simply so many better investing options now than the tokens in quadrant 4.

The best way to move forward is to focus on the 10-20 tokens that are investable, ignore the rest, and require tokens to be built properly before giving them liquidity and visibility.

Until exchanges, market makers, and other powerful gatekeepers agree on some level of token standards, expect more of the same apathetic (or down-only) price action.

And That’s Our Two Satoshis!
Thanks for reading everyone! Questions or comments, just let us know.