The Great Divide in Cryptocurrency Era: The Truth Behind BTC's Monopoly on Currency Premium

At the most pessimistic moments in the market, there is often the deepest truth hidden within the industry.

In November 2025, the Cryptocurrency Fear and Greed Index dropped to 10 (Extreme Fear), one of the few times in recent years. But strangely, this extreme fear was not caused by exchange collapses or Ponzi schemes. Instead, it occurred during a time when cryptocurrencies gained global institutional recognition— the US SEC explicitly stated that within two years, the market will be on-chain, stablecoin circulation hit a record high, and traditional finance is embracing on-chain assets on a large scale.

Amid this disconnect, an overlooked phenomenon is taking place: cryptocurrencies are experiencing an unprecedented polarization.

BTC Has Become the True Cryptocurrency

Over the past three years, Bitcoin has told the clearest story through data.

From December 2022’s $17,200, rising to the current $90,520 (a correction from the all-time high of $126,080), Bitcoin’s market cap surged from $318 billion to $1.81 trillion, making it the ninth-largest asset globally. More importantly, Bitcoin’s market share increased from 36.6% to 55.84% — a currency share that is usually diluted during bull markets, but in this cycle, it has been continuously reinforced.

This reflects a harsh reality: the market is voting with its feet, clearly distinguishing Bitcoin from all other crypto assets.

Institutional accumulation is the most direct proof. Spot Bitcoin ETFs managed $700 billion in assets in just 341 days, breaking ETF records. Today, these products hold over $120 billion worth of Bitcoin, accounting for more than 6% of the total supply. Even more astonishing, nearly 200 listed companies worldwide have included Bitcoin on their balance sheets, with MicroStrategy alone holding 650,000 BTC.

The most critical turning point occurred in 2025. The US federal government officially established the “Strategic Bitcoin Reserve” (SBR), with the White House describing Bitcoin as a “unique store of value in the global financial system,” and requiring the Treasury to formulate future accumulation strategies. This means Bitcoin has shifted from a speculative asset to a national-level strategic reserve.

This is no longer just a story of technological innovation but a redefinition of monetary form.

The Three Major Challenges and Opposing Views for BTC

But Bitcoin’s dominance is not flawless. The market must confront three structural issues:

Quantum computing threat is the most imminent. When quantum computing breakthroughs reach a critical point, existing elliptic curve digital signature algorithms (ECDSA) could be cracked. It is estimated that about 4.8 million BTC (23% of the total supply) are stored in vulnerable exposed addresses. Among them, 1.7 million are considered “dead coins.” Once compromised by quantum attacks, market confidence could be severely damaged. Although the threat may only materialize around 2030, when and how the community handles these dead coins will be an unavoidable dilemma.

Lack of programmability is limiting Bitcoin’s potential. Over 370,000 BTC (1.76% of total supply) have been bridged to other ecosystems simply because users need to use Bitcoin within programmable environments. The Bitcoin main chain cannot natively support smart contracts due to its “anti-censorship” design, forcing users into centralized custody and high risks. Introducing opcodes like OP_CAT could be key to breaking this deadlock — enabling trustless cross-chain functionality while maintaining simplicity.

Security budget concerns have far-reaching implications. In April 2024, Bitcoin’s on-chain fees reached a record high of $281.4 million, but by November 2025, it had fallen to $4.87 million — a new low since 2019. As block rewards halve every four years, Bitcoin will ultimately rely mainly on transaction fees to secure the network. While current block rewards still provide substantial incentives, this long-term uncertainty is being priced as a “tail risk” by the market.

Among these challenges, some Layer 1 blockchains still have opportunities to capitalize.

Why L1 Blockchains Can’t Outperform BTC

Let’s face an uncomfortable truth: The valuation of L1 blockchains is driven by the “future monetary premium” expectations rather than any actual economic fundamentals.

The top four public chains by market cap (Ethereum, XRP, BNB, Solana) total $686.58 billion, accounting for 83% of the L1 market. But the story behind the data is troubling:

Revenue is collapsing, yet valuations are soaring. This can only mean one thing: the market has abandoned fundamentals as an anchor and is entirely relying on the illusory “monetary premium” expectation.

Take Solana as an example. SOL has achieved an 87% excess return relative to Bitcoin, while its ecosystem has exploded — DeFi lock-in increased by 2988%, transaction fees by 1983%, DEX trading volume by 3301%. In other words, a 2000-3000% ecosystem growth only yields less than double the excess return. This absurd ratio clearly indicates that SOL’s price increase has become completely detached from its ecosystem reality.

Currently, aside from a few exceptions, we expect most L1 chains will continue to cede market share to Bitcoin. Their “cryptocurrency” narratives will become increasingly difficult for the market to believe.

Ethereum’s Uniqueness: The Birth of a Second Cryptocurrency

But the story becomes more complex with Ethereum.

In the first half of 2025, Ethereum experienced its darkest moment in market history — in March, XRP’s fully diluted valuation temporarily surpassed ETH, and in April, the ETH/BTC ratio dropped below 0.02, hitting a new low since 2020. The crypto fear index plunged to the bottom, and the market branded Ethereum as a “failed asset.”

But as history shows, the greatest reversals often stem from the deepest pessimism.

After bottoming out in May, Ethereum staged an astonishing rebound — ETH/BTC soared from 0.017 to 0.042 (139% increase), and USD price rose from $1,646 to a new high of $4,946 (191% increase). This was not a fleeting speculative spike but the emergence of a new force: massive inflows into Ethereum’s digital asset treasury (DATs).

By 2025, Ethereum’s DATs accumulated an additional 4.8 million ETH (4% of total supply), with companies like BitMine even starting to emulate MicroStrategy’s capital operations — issuing convertible bonds to finance ETH purchases and staking for yields. This created an unprecedented “self-reinforcing” mechanism.

From ETF data, the situation is even clearer: Ethereum spot ETFs saw inflows of $9.72 billion in the year, which, relative to its market cap, exceeds Bitcoin’s inflows. BlackRock holds 6.2 million ETH in spot ETFs, accounting for 62% of its holdings, up 241% from the start of the year.

But this does not mean Ethereum has become independent. Throughout 2025, ETH and BTC’s 90-day rolling correlation remained between 0.7 and 0.9, with beta soaring to 1.8. In other words, Ethereum amplifies Bitcoin’s volatility while still heavily relying on Bitcoin’s directional trend.

Ethereum’s current position is as a “leveraged expression” of Bitcoin’s narrative. As long as Bitcoin’s bull market continues, Ethereum will follow upward — but if Bitcoin stalls, Ethereum is more prone to collapse.

This is not a flaw — it might even be an advantage. If the 2026 crypto bull market persists, Ethereum’s DATs financing capacity and staking yields could provide a continuous “growth engine,” further elevating its relative position to Bitcoin. But in the foreseeable future, Ethereum will still be under the halo of Bitcoin.

The Hidden Rise of ZEC: Privacy as a New Monetary Attribute

Among all assets, the most eye-catching dark horse is Zcash (ZEC).

In 2025, ZEC’s relative increase against Bitcoin reached 666%, with its market cap soaring from $3 billion to $7.3 billion, even surpassing Monero at times to become the most valuable privacy coin. The driving force behind this is not technological breakthroughs but a shift in the era’s background.

As CBDCs (Central Bank Digital Currencies) are promoted in over 80 countries, as the US government demonstrates fund freezing capabilities during the “Free Car Fleet” incident in Canada, and as Nigeria’s central bank freezes protester accounts for political reasons — privacy suddenly shifts from a fringe topic to a necessity.

ZEC uses zero-knowledge proofs to turn Bitcoin’s transparent ledger into a “financial black hole.” Once funds enter ZEC’s privacy pools, even governments cannot trace their final destination (assuming user operations are secure). This is an attribute that Bitcoin inherently cannot provide.

Bitcoin cannot adopt a privacy pool architecture — that would require embedding complex zero-knowledge proof verification at the protocol level, risking inflation vulnerabilities and state bloat, ultimately harming decentralization. ZEC, on the other hand, exists precisely because of privacy.

Infrastructure improvements further accelerate this trend. Sapling upgrade reduced memory usage by 97% and proof times by 81%; Halo 2 technology eliminated trusted setup dependencies; Zashi mobile wallets make privacy transactions just a few clicks; NEAR’s Intent Protocol allows seamless exchanges between Bitcoin, Ethereum, and ZEC.

All these converge into a phenomenon: ZEC’s rolling correlation with Bitcoin dropped from 0.90 to 0.24, while its beta soared to a record high. The market is assigning a premium to ZEC’s unique attributes.

We believe ZEC will never surpass Bitcoin — Bitcoin’s transparent supply and unmatched auditability are its deepest moat. But ZEC can succeed in an independent track — as a privacy hedge for Bitcoin.

Application Layer Currencies: The New Trend of 2026

And the most imaginative trend is awakening at the application layer.

Traditional views hold that currency should be universal — like Bitcoin and Ethereum’s “monolithic” model. But cryptocurrencies fundamentally change this pattern: by drastically lowering switching costs between monetary systems, smaller, application-specific currencies become feasible.

Virtuals proves this. It is the first successful implementation of a dedicated monetary system in an application. Users can create and monetize AI agents without technical knowledge, each issuing tokens paired with VIRTUAL. As the AI agent’s value grows, the underlying demand for VIRTUAL increases — making VIRTUAL a fully functional currency, the unit of circulation in the entire ecosystem.

Zora goes even further. This financialized social media tokenizes all user profiles and content. Creator tokens are paired with ZORA, and content tokens are paired with creator tokens. Even more cleverly, it hides the currency layer entirely within user experience — users can pay with any asset, and the backend automatically handles ZORA conversions. Within 12 hours of Hayden Adams, founder of Uniswap, joining Zora, ZORA’s price surged 23%, and other creator tokens increased by over 35% — the network effect is actively reinforcing the value of application-layer currencies.

But the success of application-layer currencies depends on two prerequisites:

First, the application must have strong network effects — user growth should amplify individual value. Social networks and content platforms meet this condition; but lending protocols and perpetual exchanges do not — user growth only increases total trading volume, not individual holdings.

Second, the application must fully hide the complexity of the currency layer from users. Users don’t want to frequently switch assets just to use different applications. The optimal solution is to let users pay with familiar assets, with automatic backend conversions to application-layer currencies — as Zora’s built-in wallet does.

Looking ahead to 2026, we expect many projects to experiment with application-layer currency models. But this also means that the value share flowing into L1 tokens will be diluted — as more economic activity is priced in application-layer currencies rather than the underlying public chain tokens. For those L1s that emphasize “monetary attributes” as their core value proposition, this will pose long-term pressure.

Stablecoins: Tool or Trap?

Finally, stablecoins — the most successful yet most misunderstood innovation in the industry.

Stablecoins have indeed expanded financial services coverage and achieved real utility. USDC and other stablecoins hit record circulation, playing a foundational role in the tokenization of real-world assets. But this success may obscure Bitcoin’s original mission.

The original purpose of cryptocurrency was to create an alternative monetary system fundamentally different from fiat. Stablecoins, while efficient, are essentially “on-chain representations” of fiat — not replacements, but digitizations.

Amidst the success of stablecoins and large-scale institutional entry, we must remember: the true revolution of crypto is to establish non-sovereign currencies that are not controlled by any central authority.

Conclusion

The 2025 crypto market appears on the surface to be a cycle of fear and frenzy, but at a deeper level, a fundamental polarization is occurring:

• Bitcoin becomes the genuine crypto overlord through institutional recognition and national strategic status
• Ethereum upgrades into a “leveraged expression” of Bitcoin, continuously supported by DATs and corporate treasuries
• L1 chains struggle in stagnation, valuations detached from fundamentals, with most being marginalized
• Privacy coins like ZEC regain vitality driven by societal needs, becoming new tools for risk hedging
• Application-layer currencies quietly rise, poised to challenge the traditional “monolithic” public chain token paradigm in 2026

This is not a technological contest but a new round of competition in the form of currency. The biggest winners will be those projects and participants who truly understand “what is money.”