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 and Compilation: Dingdang, Odaily Planet Daily

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

Cryptocurrency Drives the Entire Industry

It is crucial to refocus the discussion on “cryptocurrency” itself, as most of the capital in the crypto industry is ultimately seeking exposure to “monetized assets.” Currently, the total crypto market capitalization is $3.26 trillion, of which BTC accounts for $1.80 trillion, or 55%. Of the remaining $1.45 trillion, about $830 billion is concentrated in various L1 blockchains. In other words, around $2.63 trillion, approximately 81% of the entire market, is invested in assets that the market already considers as money or believes may acquire monetary premium in the future.

In this context, whether you are a trader, investor, fund manager, or developer, understanding how the market assigns or withdraws monetary premium is critical. In the crypto industry, nothing drives valuation shifts 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 focus has primarily been on BTC, but there’s also a need to discuss those L1 assets—worth about $830 billion—that “may or may not be money.” As mentioned before, we expect BTC to continue absorbing market share from gold and other non-sovereign stores of value in the coming years. But this raises a question: How much room is left for L1s? When the tide rises, do all boats (assets) float (benefit)? Or will BTC, in its pursuit of gold, siphon off some of the monetary premium from L1 blockchains?

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 is a significant drop (for example, TRX is $26.67 billion), but the tail still has notable size. The total market cap of L1s ranked outside of the top 15 is still $18.06 billion, or 2% of the total L1 market cap.

More importantly, L1 market cap does not equate to pure “monetary premium.” The valuation framework for L1s primarily includes three components:

(i) Monetary Premium

(ii) Real Economic Value (REV)

(iii) Economic Security Demand

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

L1 Valuations Are Driven by Monetary Premium, Not Revenue

Despite various valuation frameworks, the market is increasingly inclined to evaluate L1s from the perspective of “monetary premium” rather than “revenue-driven” models. Over the past few years, all L1s with market caps over $1 billion have maintained an overall P/E ratio of roughly 150x to 200x. However, this aggregate data is misleading because it includes TRON and Hyperliquid. In the past 30 days, TRX and HYPE contributed 70% of the group’s revenue while accounting for only 4% of the total market cap.

Excluding these two outliers, the real story emerges. Despite declining revenue, L1 valuations have been 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 we interpret this from the REV perspective, one might think the market is pricing in future revenue growth. However, this explanation doesn’t hold up because, in the same group (still excluding TRON and Hyperliquid), L1 revenue 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 primarily driven by monetary premium, not current or future revenue.

L1s Have Consistently Underperformed Bitcoin

If L1 valuations are mainly driven by market expectations for their monetary premium, the next question is: What shapes these expectations? One straightforward way is to compare their price performance to BTC. If changes in monetary premium primarily reflect BTC’s trend, these assets’ performance should mirror BTC’s “beta”; if monetary premium is driven by unique factors for each L1, their correlation with BTC should be weaker, and performance more distinct.

As L1 representatives, 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 L1 market cap, offering strong representation. 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 just 3%, and given its historical dominance by retail funds, we won’t overinterpret this. The only asset with a significant excess return was SOL, outperforming BTC by 87%.

However, a deeper breakdown reveals that SOL’s “outperformance” may not be as strong as it seems. During the same period when SOL outperformed BTC by 87%, the Solana ecosystem’s fundamentals exploded: DeFi TVL grew by 2,988%, fees increased by 1,983%, and DEX volume soared by 3,301%. By any reasonable standard, Solana’s ecosystem has expanded 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 against BTC, an L1 cannot just grow its ecosystem by 200% or 300%—it needs to grow by 2,000%-3,000% just to barely eke out a few dozen percentage points of excess performance.

In summary, our assessment is: although 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 faith in BTC’s monetary premium as a “cryptocurrency” remains unshaken; indeed, the lead of BTC over L1s is only widening.

Although cryptocurrencies themselves do not require fees or revenue to sustain valuations, these metrics are critical for L1s. Unlike BTC, an L1’s narrative depends on building an ecosystem (applications, users, throughput, economic activity, etc.) to support its token value. However, if an L1’s ecosystem is declining year-over-year (as reflected, in part, by falling revenue and fees), it loses its only competitive edge over BTC. Without real economic growth, its “cryptomoney” narrative will become increasingly difficult for the market to accept.

Looking Forward

Looking ahead, we do not believe this trend will reverse in 2026 or even further out. With a few possible exceptions, we expect the L1 sector to continue losing market share, further squeezed by BTC. Since their valuations primarily depend on expectations of future monetary premium, as the market increasingly concludes that BTC has the strongest claim to the “cryptocurrency” narrative, L1 valuations will continue to contract. Although BTC will also face challenges in the coming years, these issues are still too distant and uncertain to provide solid support for the monetary premium of competing L1s.

The bar for L1s to prove their value has been raised. Their narrative no longer has enough appeal compared to BTC and cannot rely on market mania to support valuations in the long term. The era when the “we might become money in the future” story supported trillion-dollar market caps is closing. Investors now have a decade’s worth of data showing: L1s’ monetary premium can only be sustained when their ecosystems experience extreme growth. Once growth stalls, L1s will continue to underperform BTC, and their monetary premium will dissipate accordingly.