One of the most interesting features of the current crypto markets is the elevated level of dispersion, or range of returns across different parts of the market.
In today’s liquid markets, sectors focused on infrastructure and technology have significantly outperformed more consumer-oriented categories like gaming, metaverse, and entertainment-related tokens.
CoinDesk sector indices’ performance since November 2021 (the peak of the last bull market) reveals this trend.
The “range” value, which shows the difference between the maximum and minimum cumulative returns at each point in time, highlights the level of dispersion. Dispersion started high in the fourth quarter of 2021 due to a surge in culture and entertainment-related developments. It then dropped in 2022 as the market collapsed, correlations rose, and assets largely traded in sync.
However, dispersion has been rising since 2023, picking up meaningfully in the fourth quarter of last year, with Currencies and Smart Contract Platforms (infrastructure) breaking away from the rest of the market. In 2024, dispersion is at a high over this period, with tokens in the Culture & Entertainment sector continuing to draw down, while BTC, ETH, and other smart contract platform tokens are outperforming.
Take a few examples to illustrate this last point. The overall market’s current maximum drawdown (using the CoinDesk Market Index) was -33% over this period. Compare that to some of the largest consumer tokens in the Gaming and Culture & Entertainment sectors, including Axie Infinity (game), Decentraland and The Sandbox (metaverses), and Apecoin (token associated with the NFT collection Bored Ape Yacht Club). These tokens’ maximum drawdowns were -96%, -94%, -96%, and -96% respectively. They have not participated in the market’s recovery this cycle.
Another way to view dispersion is through the rolling 30-day average of the daily standard deviation of returns across the CoinDesk sector indices. Since the fourth quarter of last year, sector dispersion has mostly been above average. This elevated level of dispersion indicates that the market is no longer moving in unison, and individual sectors are experiencing different growth trajectories based on their underlying fundamentals and investor interest.
To delve deeper, we examine the number of billion-dollar-valued tokens in each sector (sectors are defined by Hack VC) as of five years ago compared to today. In 2019, Currencies dominated the market: BTC and BTC competitors. Today, half of the tokens are in the infrastructure sector (layer 1 and layer 2 blockchains). This sector has seen massive growth over the past five-plus years. We also see new sectors emerging. AI, for example, is a relatively new part of the market that brings together two of the most exciting emerging technologies: crypto and AI. While there is a lot of hype and promise, real benefits exist today. In the next five years, we expect additional sectors and sub-sectors will emerge.
Source:- yahoo.finance