The outcome of the US election last month continues to reverberate through the crypto markets. The Nasdaq Crypto IndexTM (NCITM) has risen over 57% since November 5, fueled by widespread optimism over the direction of digital asset policy in the US.

As I wrote in a previous note, crypto assets tend to follow a four-year cycle that includes a bull phase of roughly 12 months, followed by a year-long bear market, and then a two-year recovery period. In the previous two bull markets, altcoins (i.e., everything outside of BTC) have significantly outperformed the largest crypto asset.

I believe we’ve entered a bull market, reinforced by the macro environment and US election outcomes. But there’s another data point signaling a bull market—the outperformance of the NCITM relative to BTC.¹ In the last three months, the NCITM has had a higher return than BTC (78.0% vs. 76.5%) and since the election, the NCITM has outperformed BTC by 6.8%.

Crypto Asset Performance

So, which specific aspects of crypto are poised for outperformance this time around?

One key area to watch is smart contract projects, platforms that will allow users to transact not only information but value and property as well. We believe these platforms and applications will outperform BTC in the next 12-18 months as they compete for users and lay the groundwork for decentralized applications. On the back of the infrastructure developments we have seen in this area in the last few years, new applications are emerging across AI, gaming, and many other areas as tokenization continues to expand.

We also believe that new regulatory progress in 2025 will be more beneficial to these applications than to Bitcoin specifically, because Bitcoin already has regulatory clarity and a well-developed capital markets structure, with the growth of ETFs, options, and futures. In the US and Europe, this legislative and regulatory clarity that will benefit altcoins may include:

• Market structure legislation: Proposals like FIT21 will remove ambiguities regarding the commodity vs. security status of crypto assets, as well as create paths to registration that could boost adoption in the US.

• Stablecoin legislation / MiCA implementation: Both will drive the adoption of stablecoins in the US and Europe, expanding the stablecoin phenomenon beyond just emerging markets.

• Repeal of SAB121: When this obstacle is removed and US banks can hold crypto for their clients, banks and brokerages will increase their crypto trading and custody offerings, which will benefit altcoins the most.

• New ETF launches: With the new SEC chair, there are renewed hopes for additional ETF approvals, including indices and single assets like Solana and XRP. There’s still much uncertainty here, but new assets having ETFs as on-ramps is highly positive.

In addition to Bitcoin developing as an emerging digital store of wealth and smart contract platforms becoming a new way to exchange information, value, and property, there are three other altcoin use cases we believe will benefit in the coming year:

1. DeFi: Projects aimed at creating an internet-based financial system, running on smart contract platforms, will create a new global capital markets infrastructure for payments, with stablecoins and tokenized money market funds being the first important use cases.
2. Web3: A new iteration of the internet that will let us own our data and make the internet decentralized and more usable for things like AI agents and other innovations.
3. Digital Culture: An emerging digital-native generation will have more demand to own digital assets and collectibles, with gaming being a natural first application.

If we compare crypto to the internet, this industry is like the internet in the 1990s and Bitcoin could be compared to email—the only application most people hear about. But fast forward 20 years and while email is still very useful, it has not been the internet’s application that created the most societal value. We believe this could be true for how Bitcoin is currently viewed relative to crypto.

Benefits of diversification

Our team at Hashdex are firm believers that getting broad exposure to this market is necessary to capture the growth we believe we will experience in these other areas. Indices like the Nasdaq Crypto IndexTM (NCITM) can provide broader market exposure and, as crypto matures as an asset class, better risk-adjusted returns. Additionally, indices provide more significant optionality as investors don’t need to rely on an active manager to do this for them. The complexity and fast-evolving nature of crypto make it hard to pick individual winners and an index simplifies investing by offering a balanced, data-driven selection of assets that can align with modern portfolio theory principles.

This is why index ETFs have been at the core of our mission. Accessing crypto through these familiar structures allows investors to benefit from the growth of this asset class with minimal friction. For most investors, we most often recommend a very small allocation to crypto, from 1% to 5%. We strongly believe that a benchmark like the NCITM is an excellent way to “buy the market” and benefit from a strategic allocation into this promising asset class.

[1] The Nasdaq Crypto Index includes Bitcoin, Ethereum, Solana, Ripple, Cardano, Chainlink, Avalanche, Litecoin, Polygon, and Uniswap as of 9/30/24