Dispersion Is Defining the Current Crypto Market

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.

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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.

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.

This
dispersion
and
development
of
new
sectors
over
time
is
positive
for
active
managers.
It
indicates
growing
market
sophistication,
with
value
being
rewarded
and
fundamentals
becoming
increasingly
important.
Dispersion
also
offers
significant
opportunities
for
generating
alpha.
It
makes
it
easier
for
active
managers
with
alpha
to
outperform
the
market,
though
it
also
increases
the
risk
of
underperformance
without
a
strong
strategy.

Disclosure

The
information
herein
is
for
general
information
purposes
only
and
does
not,
and
is
not
intended
to,
constitute
investment
advice
and
should
not
be
used
in
the
evaluation
of
any
investment
decision.
Such
information
should
not
be
relied
upon
for
accounting,
legal,
tax,
business,
investment,
or
other
relevant
advice.
You
should
consult
your
own
advisers,
including
your
own
counsel,
for
accounting,
legal,
tax,
business,
investment,
or
other
relevant
advice,
including
with
respect
to
anything
discussed
herein.

This
article
reflects
the
current
opinions
of
the
author(s)
and
is
not
made
on
behalf
of
Hack
VC
or
its
affiliates,
including
any
funds
managed
by
Hack
VC,
and
does
not
necessarily
reflect
the
opinions
of
Hack
VC,
its
affiliates,
including
its
general
partner
affiliates,
or
any
other
individuals
associated
with
Hack
VC.
Certain
information
contained
herein
has
been
obtained
from
published
sources
and/or
prepared
by
third
parties
and
in
certain
cases
has
not
been
updated
through
the
date
hereof.
While
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sources
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believed
to
be
reliable,
neither
Hack
VC,
its
affiliates,
including
its
general
partner
affiliates,
or
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other
individuals
associated
with
Hack
VC
are
making
representations
as
to
their
accuracy
or
completeness,
and
they
should
not
be
relied
on
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such
or
be
the
basis
for
an
accounting,
legal,
tax,
business,
investment,
or
other
decision.
The
information
herein
does
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purport
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change
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VC
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if
such
information
becomes
inaccurate.

Past
performance
is
not
necessarily
indicative
of
future
results.
Any
forward-looking
statements
made
herein
are
based
on
certain
assumptions
and
analyses
made
by
the
author
in
light
of
her
experience
and
perception
of
historical
trends,
current
conditions,
and
expected
future
developments,
as
well
as
other
factors
she
believes
are
appropriate
under
the
circumstances.
Such
statements
are
not
guarantees
of
future
performance
and
are
subject
to
certain
risks,
uncertainties,
and
assumptions
that
are
difficult
to
predict.