Capturing the Rise of Fast-Growing Tokens
In the US equity markets, the average lifespan of a member of the S&P 500 index has been reducing. Back in 1935, a member of the index would stay in the index for 90 years before being churned out. Today, a company can expect to stay just 18 years. That is a 80% decrease. In fact "at the current rate of replacement, an S&P 500 company is being replaced about once every two weeks."
Since the S&P 500 is ranked primarily by market cap, the implication is that market cap growth is consistently and increasingly being driven by companies outside of the top 500, which then break into the 500, ending out existing companies.
FNDX has observed this play out in the crypto markets, but at a far accelerated pace.
Specifically, the large cap tokens (defined as top 20 by market cap) tend to drop sharply in rank and correspondingly, the top 20 tokens of recent months are made of up tokens that were far lower in rank earlier.
Today we present a sample of that data.
We looked at three 3-year periods for the top 20 tokens [1]: January 2019-January 2022, July 2019-July 2022, and September 2019-September 2022. FNDX observed than in each case,
The majority of top 20 tokens dropped in rank over that three year period. Not just that, the majority also dropped out of the top 20 altogether - this is particularly notable.
The majority of the top 20 tokens today are made up of tokens that were not in the top 20 three years ago. And nearly half were not even in the top 100 - this is also notable.
Summarising this data,
This is not unique to these time periods. In general, we see that funds, baskets and other index products that hold just the top 10 or top 20 tokens by market cap are not optimally capturing value - that value is being captured by tokens that are outside of the top 20.
Clearly a super-large-cap token strategy, or even a Bitcoin-only strategy misses out on upside. The optimal strategy, then, is a broad-market one like the FNDX 100, which captures tokens as they rise up in value, and - just as importantly - auto-rebalances them out as they fall in value.
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