The current crypto market is characterized by significant dispersion, or variability in returns across different segments. In today’s liquid markets, sectors emphasizing infrastructure and technology have notably outperformed consumer-focused categories such as gaming, metaverse, and entertainment-related tokens.
Analysis of CoinDesk sector indices since November 2021, marking the peak of the last bull market, underscores this trend. The “range” metric, which measures the difference between maximum and minimum cumulative returns at each point, serves as a key indicator of dispersion levels. Initially high in late 2021 due to cultural and entertainment-driven developments, dispersion diminished in 2022 amid market contraction and increased asset correlations.
However, dispersion has resurged since 2023, notably accelerating in late 2023, with currencies and smart contract platforms diverging from other market segments. In 2024, dispersion has remained pronounced, with culture and entertainment tokens continuing to decline while BTC, ETH, and smart contract platform tokens demonstrate stronger performance.
For instance, the overall market’s maximum drawdown, based on the CoinDesk Market Index, reached -33% during this period. In contrast, leading consumer tokens in gaming and entertainment sectors, such as Axie Infinity, Decentraland, The Sandbox, and Apecoin (associated with NFT collection Bored Ape Yacht Club), experienced far deeper drawdowns of -96%.
Another measure of dispersion is the rolling 30-day average of the daily standard deviation of returns across CoinDesk sector indices, which has consistently been above average since late 2023. This heightened dispersion underscores that sectors are moving independently, driven by unique fundamentals and investor sentiments.
Further analysis delves into the evolution of billion-dollar-valued tokens across sectors defined by Hack VC over the past five years. Initially dominated by currencies like BTC, today’s market sees a significant shift towards infrastructure, including layer 1 and layer 2 blockchains. Emerging sectors like AI also highlight the convergence of crypto and AI technologies, offering potential synergies amid ongoing market diversification.
Looking ahead, the crypto market is expected to witness the emergence of new sectors and sub-sectors, driven by innovation and evolving investor preferences. While certain segments continue to outperform based on robust fundamentals, ongoing dispersion suggests opportunities for strategic investment and portfolio diversification in an increasingly nuanced market landscape.
