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Small-Cap Crypto Outperforms as Risk Appetite Returns

13 February 2023

Read Time 8 MIN


Small-Caps stood out amid the January digital assets rally, as emerging markets powered crypto gains to start the year strong.

Digital assets rallied sharply in January after the Bitcoin price registered the most severe oversold condition ever. Risk appetite rebounded as inflation fell, the dollar fell, and bonds rallied. For the month, the Nasdaq composite rose 11%, Bitcoin +39%, and Ethereum +33%. Small-cap crypto assets rallied even more (past performance is no guarantee for future performance).

We noted last month that Bitcoin’s 30-day volatility was abnormally low and likely to mean revert. We highlighted four positive and four negative catalysts. Two of our four negative catalysts appear off the table for now, with the Genesis standalone bankruptcy and CFIUS approving Binance’s acquisition of $1B of Voyager customer assets. On the positive side, we had been expecting momentum in the Middle East, which materialized in the form of the largest ever Bitcoin mining project in the region (250MW, $400M0, a joint venture involving publicly traded Marathon Digital in Abu Dhabi). We expect Saudi to follow later this year as crypto licenses may be granted alongside the setup of special economic zones.

We also recently highlighted the high correlation between RMB strength and the Bitcoin price, which has persisted amidst China’s economic rebound. US-based investors seem keenly aware that money supply growth has stagnated stateside. However, global money supply has re-accelerated, driven by Asia, home to six of the top 10 countries on Chainalysis’ crypto adoption index. Indeed, Bitcoin price returns in January were much more robust during Asia trading hours than U.S. or European, perhaps evidence that liquidity in the region is finding Bitcoin and other digital assets (past performance is no guarantee for future performance).

Global Money Supply Growth Re-Accelerated—but Not in the U.S.

Global Money Supply Growth Re-Accelerated-but Not in the U.S.

Source: Bloomberg as of 26/1/2023.

  Market Cap 30 days 90 days 365 days
Infrastructure $8.3B +44% +2% -55%
Exchange $21.5B +28% -9% -31%
BTC $448B +39% +13% -40%
ETH $195B +33% +1% -41%
Defi $9.2B +51% +1% -54%
Smart Contracts $254B +52% -6% -61%
Metaverse $6.6B +80% 0% -77%

Source: Bloomberg, MVIS as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

Smart Contract Platforms:

January saw a broad rebound in token prices across the layer 1 blockchain landscape alongside improved fundamental metrics. Compared to the month of December, important indicators of blockchain usage and profitability, such as Daily Active Addresses and Monthly Revenues were up 11% and 44.7% across all blockchains we track. The top price performers of the month included Aptos, Solana, and Near, whose trailing 30-Day returns were 419%, 144%, and 88%, respectively. Amongst the winners, Solana and Near saw significant month-to-month increases in usership, with Solana's Daily Active Addresses up 45% while Near’s were up 38%. Price increases also came amid several sustained short squeezes, particularly in Aptos and Solana, which saw the short interest costs approach nearly 100% and 300%, respectively, on an annual basis.

The weakest performers included Cosmos, Ethereum, and BNB, whose gains were 42%, 33%, and 25%, respectively. The price action in Cosmos can be attributed to community disappointment amid the lack of progress toward implementing its value accrual mechanism called ICS (interchain security). On the other hand, Ethereum’s price action likely relates to improved risk appetite pushing participants further out the risk curve. Ethereum Daily Active Addresses fell 10% during the month. Binance’s BNB token also underperformed as lackluster fee growth (2%) and a 23% drop in Daily Active Addresses marked it as one of the only L1 protocols without improving on-chain fundamentals for the month of January.

In terms of aggregate fees, Ethereum has continued to dominate the market since the Merge (15 September, 2022). In the month following the merge, Ethereum took an average share of 75% of all layer 1 blockchain fees; in January 2023, ETH accounted for 86% of fees. This paradigm not only reflects Ethereum's current popularity but also shows the relative economic decline of competing L1s due to the cheapness of Ethereum block space and the rise of Ethereum L2s. Binance was a distant second in January with 12% of all fees, while Solana took third place with 0.84% of all fees.

Layer 1 Monthly Fee Growth

Layer 1 Monthly Fee Growth

Source: Artemis as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

Change in Monthly Average Daily Active Users

Change in Monthly Average Daily Active Users

Source: Artemis as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

Market Share of Revenues of Layer 1 Blockchains, Post Ethereum Merge

Market Share of Revenues of Layer 1 Blockchains, Post Ethereum Merge

Source: Artemis as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

When assessing L1 blockchains, it is important to consider if each chain generates more from transaction fees than it emits in inflationary token issuance. If blockchains were considered businesses, transaction fees would constitute revenues, whereas inflationary issuance would be expenses. This is because the main purpose of inflationary issuance is to pay validators for providing security. Thus, transaction fees, less issuance, would approximate profits. Based on these thought experiment two smart contract blockchains would currently be considered profitable – Binance Smart Chain (BNB) and Ethereum (ETH). On the other hand, none of the other major chains are even close to covering their security costs at current usage rates

While Polkadot and Cosmos are technically Layer-0s whose tokens accrue value by means other than transaction revenue, the other noteworthy smart contract blockchains are far from covering their costs. The closest smart contract platform to achieving profitability based on what we outlined above is Fantom, whose security budget exceeds its revenue by ~$31.5M per year. Likewise, if we were to consider ROE (which we define as trailing 100-day fees, annualized, divided by current market cap), Fantom would also be the least unprofitable of the bunch, followed by Cardano. Cardano’s relatively less negative ROE may explain why it maintains a high market capitalization, ~$13.5B, compared to its relatively small userbase, around 70k Daily Active Addresses. To extend the ROE argument further, it would appear that Cardano and Fantom are two chains that are nearest to profitability. As a result, they merit increased scrutiny as they could be “sleeper” picks for 2023 if either starts to gain momentum in user traction. At the same time, we emphasize that this is a pure estimate and not a guarantee.

Yearly Profits/Losses vs. ROE

Yearly Profits/Losses vs. ROE

Source: TokenTerminal as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.


January price action finally brought some relief to metaverse investors as token prices soared across the board. Decentraland’s MANA had the best monthly performance of the top virtual world tokens, notching a 150% gain in January, while APE and SAND appreciated 60% and 92%, respectively. MANA’s lower, fully diluted valuation likely explains its outperformance as it is currently valued 25% lower than SAND despite a roughly equal number of daily users. Gaming tokens also rallied with the rest of the crypto market, with Treasure DAO’s MAGIC recording a 153% gain in January. Treasure DAO has built a gaming ecosystem on Arbitrum. Their token’s performance can be attributed to growing investor interest in dapps built on Ethereum scaling solutions and the DAO announcing that it would release 10 new games in 2023. Please note that there are also bad price developments in this area and the investment is associated with high risks.

In previous newsletters, we highlighted that Yuga Labs would likely release new developments to prevent APE stakers from dumping their token rewards, and in January, they did that. In the middle of the month, Yuga Labs allowed Bored Ape Yacht Club and Mutant Ape Yacht Club holders to claim a “Sewer Pass,” which granted them access to a new mini-game coined “Dookey Dash.” Sewer Pass holders can play the game until February 8th, when the “Summoning” occurs. Few details have been released on the “Summoning,” but users anticipate they will likely be rewarded with an NFT that will have an important role in the Otherside metaverse. Since the Sewer Pass is tradable, holders could speculate on the value of the Summoning reward, and some have opted not to play and sold their Sewer Pass, which currently (Status: February 2023) has a floor price of $3,800 on OpenSea. Yuga Labs also announced that their second metaverse demo or “trip” would be held in March.

NFT markets had an exceptional month, with trading volume up 41% month-over-month and multiple bullish announcements in the space. Please note that past performance is no guarantee for future performance. Last month it was announced that the DeGods and Y00ts NFT collections would migrate to Polygon, and we speculated that more successful collections would launch projects on different blockchains. This month, Doodles announced they would launch their second collection, Doodles 2, on Flow and cited that the ease of wallet creation and additional on-chain customizability warranted the decision. Setting up a self-custody wallet has repeatedly been identified as a major pain point for attracting Web2 users. With this move, Doodles hopes to garner wider adoption from non-crypto native users like the NBA Top Shot collection did, which has generated over $1 billion in trade volume. Other notable NFT announcements included PROOF Collective, the brand behind the Moonbird collection, signing a deal with Hollywood’s United Talent Agency to help push the Moonbird brand into new markets, according to the project's founder, Kevin Rose. As the month ended, Blockworks reported that Amazon would launch a digital assets enterprise and release at least one NFT collection in collaboration with an artist in the spring. Finally, if you will be watching the upcoming NFL Super Bowl, be on the lookout for the Digi Daigaku commercial, as viewers will be able to scan a QR code in the commercial to mint a free Digi Dragon NFT.

Small-caps Outperform: Gaming and Metaverse Token Performance

Small-caps Outperform: Gaming and Metaverse Token Performance

Source: VanEck, Coingecko as of 31/1/2023.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

Sources: Bloomberg, TheTie, Artemis, Messari, Cryptoslam, CryptoQuant, DefiLlama, Dune, VanEck research. Monthly returns measured from 12/30 to 1/31.

Past performance is not indicative of future results. Not a recommendation to buy or sell any of the names mentioned herein.

Index Definitions

Index returns assume reinvestment of all income and do not reflect any management fees or brokerage expenses associated with fund returns. Returns for actual fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. You cannot invest directly in an index.

MVIS CryptoCompare Smart Contract Leaders Index: designed to track the performance of the largest and most liquid smart contract assets, and is an investable subset of MVIS CryptoCompare Smart Contract Index.

MVIS CryptoCompare Infrastructure Application Leaders Index: Designed to track the performance of the largest and most liquid infrastructure application assets, and is an investable subset of MVIS CryptoCompare Infrastructure Application Index.

MVIS CryptoCompare Decentralized Finance Leaders Index: Designed to track the performance of the largest and most liquid decentralized finance assets, and is an investable subset of MVIS CryptoCompare Decentralized Finance Index.

MVIS CryptoCompare Media & Entertainment Leaders Index: designed to track the performance of the largest and most liquid media & entertainment assets, and is an investable subset of MVIS CryptoCompare Media & Entertainment Index.

The MarketVector™ Centralized Exchanges Index: designed to track the performance of assets classified as ‘Centralized Exchanges.

Nasdaq Composite Index: measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market.

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities.

Coin Definitions

Bitcoin (BTC) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Ethereum (ETH) is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

Ripple (XRP) is a cryptocurrency aiming to increase the speed and reduce the cost of transferring money between financial institutions. Underpinning Ripple's xRapid product, an on-demand liquidity solution, XRP is used as a bridge currency for financial institutions exchanging value between multiple fiat currencies.

Internet Computer (ICP) is the world's first blockchain that runs at web speed and serves content on the web, with unbounded capacity.

Algorand (ALGO) is a scalable, secure, and decentralized digital currency and smart contract platform. Its protocol uses a variation of Proof-of-Stake (PoS) called Pure PoS (PPoS) to secure the network and reach consensus on block production.

Solana (SOL) is a public blockchain platform. It is open-source and decentralized, with consensus achieved using proof of stake and proof of history. Its internal cryptocurrency is SOL.

STEPN (GMT) is a self-styled “Web3 lifestyle app” with GameFi elements on the Solana blockchain. It combines aspects of a play-to-earn game with a fitness app to create a new category coined “move-to-earn.” Users buy NFT sneakers, which they can use to earn in-game currency while walking, running, or jogging.

Polygon (MATIC) is the first well-structured, easy-to-use platform for Ethereum scaling and infrastructure development. Its core component is Polygon SDK, a modular, flexible framework that supports building multiple types of applications.

Hivemapper (HONEY) is the cryptocurrency of the Hivemapper Network. Built on top of Solana, HONEY rewards contributions to the Hivemapper mapping network.

Optimism (OP) is a layer-two blockchain on top of Ethereum. Optimism benefits from the security of the Ethereum mainnet and helps scale the Ethereum ecosystem by using optimistic rollups.

Cosmos (ATOM) is a cryptocurrency that powers an ecosystem of blockchains designed to scale and interoperate with each other.

Tezos (XTZ) is a decentralized, open-source proof of stake blockchain network that can execute peer-to-peer transactions and serve as a platform for deploying smart contracts.

Celo (CELO) Celo is a blockchain ecosystem focused on increasing cryptocurrency adoption among smartphone users.

Waves (WAVES) is a public blockchain network that enables users to create and access decentralized applications. It features on-chain governance, Formal Verification for smart contracts, and a variation of Proof-of-Stake (PoS) called Leased PoS to ensure network consensus.

THORchain (RUNE) is an independent blockchain built using the Cosmos SDK that will serve as a cross-chain decentralized exchange (DEX).

Binance Coin (BNB) is digital asset native to the Binance blockchain and launched by the Binance online exchange.

Bitcoin Cash (BCH) is a Bitcoin hard fork advocating for and building towards a literal interpretation of Bitcoin as a "peer-to-peer electronic cash system".

Dogecoin (DOGE) is based on the popular "doge" Internet meme and features a Shiba Inu on its logo. The open-source digital currency was created by Billy Markus from Portland, Oregon and Jackson Palmer from Sydney, Australia, and was forked from Litecoin in December 2013.

Litecoin (LTC) is a fork of Bitcoin's codebase with four times faster block times and a four times larger supply.

Avalanche (AVAX) is an open-source platform for launching decentralized finance applications and enterprise blockchain deployments in one interoperable, scalable ecosystem.

Uniswap (UNI) is a popular decentralized trading protocol, known for its role in facilitating automated trading of decentralized finance (DeFi) tokens.

Compound (COMP) is a DeFi lending protocol that allows users to earn interest on their cryptocurrencies by depositing them into one of several pools supported by the platform.

Aave (AAVE) is an open-source and non-custodial protocol to earn interest on deposits and borrow assets with a variable or stable interest rate.

PanCake Swap (CAKE) is an automated market maker (AMM) — a decentralized finance (DeFi) application that allows users to exchange tokens, providing liquidity via farming and earning fees in return.

Curve Finance (CRV) is a decentralized exchange optimized for low slippage swaps between stablecoins or similar assets that peg to the same value.

Maker (MKR) is the governance token of the MakerDAO and Maker Protocol — respectively a decentralized organization and a software platform, both based on the Ethereum blockchain — that allows users to issue and manage the DAI stablecoin.

The Graph (GRT) is a protocol for indexing and querying data from blockchains, starting with Ethereum.

Quant Network (QNT) aims to connect blockchains and networks on a global scale, without reducing the efficiency and interoperability of the network. It is the first project to solve the interoperability problem through the creation of the first blockchain operating system.

Filecoin (FIL) is a decentralized data storage network built by Protocol Labs that allows users to sell their excess storage on an open platform.

VeChain (VET) is a smart contract platform focused on providing supply chain management solutions for enterprises and integrating with Internet of Things (IoT) devices to facilitate the process. Its goal is to leverage distributed ledger technology to streamline these operations and information flow for complicated supply chains.

Chainlink (LINK) is a decentralized oracle network. It aims to serve as a middleware between smart contracts on smart contracting platforms and external data sources, allowing smart contracts to securely access off-chain data feeds.

Decentraland (MANA) is building a decentralized, blockchain-based virtual world for users to create, experience and monetize content and applications.

The Sandbox (SAND) is a virtual world where players can build, own, and monetize their gaming experiences using non-fungible tokens (NFTs) and $SAND, the platform’s utility token.

ApeCoin (APE) is a governance and utility token that grants its holders access to the ApeCoin DAO, a decentralized community of Web3 builders.

Axie Infinity (AXS) is a "play-to-earn" pet training game and virtual world built on the Ethereum blockchain.

The Theta Network (THETA) is a blockchain protocol for improving the process of creating, streaming, and consuming video content online. Theta Tokens are used in the network to incentivize users to act as peers who share redundant or excess computing and bandwidth resources with other peers.

OKB (OKB) is the native exchange token of OKEx that provides discounts on trading fees, access to the OK Jumpstart initial exchange offering (IEO) platform, and voting rights for tokens to be listed on the exchange.

The Celsius Network (CEL) is a leading retail savings platform for interest-bearing and borrowing accounts with fiat on-ramp, as well as a market-leading CeFi lending provider.

Cronos (CRO) is the native cryptocurrency token of Cronos Chain — a decentralized, open-source blockchain developed by the payment, trading and financial services company.

Huobi Token (HT) is an ecosystem token launched by Huobi Global, offering benefits such as trading fee and margin discounts and access to certain trading events.

VanEck assumes no liability for the content of any linked third-party site, and/or content hosted on external sites. Please note that investing is subject to risk, including the possible loss of principal.

The underlying Index is the exclusive property of MV Index Solutions GmbH, which has contracted with CryptoCompare Data Limited to maintain and calculate the Index. CryptoCompare Data Limited uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the MV Index Solutions GmbH, CryptoCompare Data Limited has no obligation to point out errors in the Index to third parties.

Important Disclosure

For informational and advertising purposes only.

This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KID before investing.

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