TOKEN2049: Fundamentals Are Shaping Crypto Investing

Two days at the biggest crypto conference in the world are exciting. It's also exhausting listening to and meeting with so many of the major builders and thought leaders from both the crypto and the traditional finance world. I took it in for you, and this article is to share some of my major takeaways -- many of which you're less likely to read anywhere else -- but that I think are very encouraging for Foolish crypto investors.

Let me present to you the story of why right now is exactly the right time for Foolish investors to enter the digital asset space. It comes in five chapters, plus a bonus for the truly Foolish investors.

Past Hype Has Led to the Availability of Highly Usable Infrastructure Today

Alliance's Will Robinson shared a few charts based on hundreds, if not thousands, of conversations with crypto founders. They depict what founders have in mind for building applications over time.

Nonfungible tokens (NFTs), for example, had the highest share in November 2021, with 37% of all founders. This dropped quickly and kept dropping to basically zero right now. The decentralized autonomous organizations (DAOs) had a peak later in December 2021 at 24%, dropping to less than 4% a year later and are at almost zero now. Other themes, such as play-to-earn, show virtually the same curves. One theme that may have just peaked and is already dropping sharply is prediction markets.

This is not surprising. New things cause hypes that then quickly subside. This may never change because it's human nature. We have to consider such cycles in our fundamental investing approach, being careful about when and how we buy into hype.

But something has changed in crypto that makes it easier for fundamental investors to succeed. Real Vision's Jamie Coutts pointed this out very well in his presentation.

The above-mentioned hypes led to massive investments into building and scaling infrastructure. In 2021, for example, $36.5 billion was raised, according to Coutts. This paid off in a sense because we now have massive blockspace available across diverse ecosystems, and it costs very little to use. Even the notoriously slow and expensive Ethereum (CRYPTO: ETH) blockchain went from a median fee of more than $10 in 2021 to just around $0.04 now.

Most other blockchains are even cheaper. This enables use cases that simply were not possible before. More on that below.

Capital Discipline Has Entered the Picture

The challenge in the past was that a lot of the investments went into incentives. Read: token issuance. According to Coutts, typical token supply growth was 14% a year about five years ago, leading to an increase in token supply of 78% since January 2021.

What has this meant? Total crypto market capitalization, excluding Bitcoin (CRYPTO: BTC) and stablecoins, has grown from around $330 billion at the end of January 2021 to nearly $820 billion today. This is a decent 150% growth.

However, if you consider that 78% of this growth has come from new token issuance and not from price increases, you realize that, despite 150% growth in market capitalization, portfolios of passive investors who haven't participated in this new token issuance have increased only 40% over the past five years. Actually, it's even less because this analysis hasn't yet factored in the added market capitalization of completely new projects launched after 2021. This has been devastating for investors.

But this is also where the next good news enters. New token issuance is down by 87%, according to Coutts, so that typical token supply growth is down to 3% per year. These are inflation figures investors are familiar with. Beating a 3% inflation rate is a very different story from beating the previous 14% inflation rate!

Fundamentals Are Taking Center Stage

If you've followed the digital asset space, you've noticed that suddenly people are talking about protocols that use the revenues they generate to do token buybacks. Hyperliquid (CRYPTO: HYPE) is the most well-known example of using 97% of its massive revenue to buy back its own token, but there are others.

These projects have started to outperform that market. Hyperliquid, Pump.fun (CRYPTO: PUMP), and Aerodrome Finance (CRYPTO: AERO) are currently the top three protocols measured by how much revenue has been used for buybacks over the past 30 days, according to DefiLlama. These tokens' year-to-date returns are 236%, 191%, and 105%, respectively, compared to a total crypto market capitalization that has declined by 6% over the same period.

I believe this shows that the market is starting to pay more attention to cryptos that actually do have solid, proven fundamentals. This hasn't necessarily been the case in the past.

Coutts has found the same. According to his calculations, a basket of cryptos that have passed a basic fundamental filter has returned a negative 35% per year between 2022 and 2025. If you held a basket of the market capitalization-weighted Top 200 cryptos, on the other hand, they would have returned a positive 3% per year over the same time period. In 2026, the same basket of fundamentally filtered cryptos has outperformed the market capitalization-weighted basket by 4 percentage points!

AI and Tokenization Will Enable Previously Unseen Capital Efficiency and Catapult the Blockchain Space Higher

Everybody is talking about AI, and I believe fewer and fewer people doubt that AI agents will play a major role in the future. Most everyone is probably going to have several agents basically performing their work and other tasks.

I think the general public and general investors underestimate one thing that has been a topic of several presentations and discussions. What will be the financial layer all these agents use? Will they all get bank accounts? Or will they get connected to our bank accounts, which we give them permission to use?

I don't think this makes any sense. What makes much more sense is that these agents will have their own wallets with which they transact. Permissionless blockchain is the one technology that makes this possible. Coupled with the tons of now-existing low-cost blockspace available, it's not difficult to see a future where agents are the major users of blockspace in massive quantities.

But there's one more thing that excites me even more than all of the above.

Real Problems Are Being Solved With the Right Motivations

One of the quotes that hit me only later during the conference was Akshay BD saying, "AI for discovery, tokenization for access." He made a great point that tokenization enables access to asset classes for people excluded from investing in them before. This is obvious if you think about it.

What I haven't realized before is what this does in combination with AI.

Not only does tokenization enable a world where you and I and everybody else can invest in hundreds of thousands or maybe millions of different stocks and other assets all over the world. But AI makes it possible for us to actually discover the few specific investing opportunities we may be looking for that otherwise we may not be able to find.

When it really hit me was during a conversation with an African start-up currently looking for investors. Africa is a very diverse continent where market participants are dealing with challenges you and I have long forgotten. According to materials provided by this start-up, inefficient cross-border settlements lock up billions of dollars in capital. There are hundreds of billions of outstanding receivables, with tens of billions of unmet demand and trillions of dollars of loan books that simply cannot trade today. According to the same presentation, Africa makes up 2.7% of world gross domestic product (GDP), but only 0.2% of world equity trading happens there.

These are massive numbers, and, in my opinion, they're a big reason why prosperity is struggling to find its way in Africa.

However, this may change. All the things discussed above, in combination with regulations being put in place in Africa that clearly define the frameworks about how crypto and blockchain technology may be used, for the first time ever make a solution for these challenges absolutely feasible.

Bonus: True Foolishness Is Found in the Crypto Space

The combination of all of this, in my opinion, is a perfect reason for virtually anybody to seriously consider investing in the crypto space -- and maybe for the first time ever.

But what I came away with from TOKEN2049 is even more exciting for truly Foolish investors.

Good fundamentals are a necessary ingredient for a successful investment. But if we want to be comfortable with a Foolish investing approach of buying and, ideally, holding for years, decent revenue and growth today are not enough. There are other special ingredients that differentiate a fundamentally good business from one that lasts. One of these special ingredients I personally value is a good company culture. I heard some encouraging words during presentations and conversations at the conference pertaining to this.

For example, Illia Polosukhin, founder of NEAR Protocol (CRYPTO: NEAR), made the point that "we need to build products that meet user experience expectations," and "Crypto hasn't achieved that in the past." Such focus on the customer was even more ingrained in Hyperliquid Co-Founder Jeff Yan, who said, "We're not really optimizing for revenue. That's a byproduct of providing value."

Such statements are music to my ears and tell me there are people working in the space who aren't in it just to get rich. At their core is building something that adds value to customers.

This differentiates great companies from good ones. They focus on providing value first, and business success is a natural result from that.

Of course, there are other things that have to come together for a great long-term investment. But these are the types of companies I'm looking for as a Foolish investor.

Conclusion

As I reflect on the discussions and data from TOKEN2049, it's clear: For Foolish investors, there has never been a better time to dive into the digital asset space. The infrastructure is robust now, capital is more efficiently managed than ever before, AI integration is rising, and fundamentals are just starting to matter. In my view, the tide is uniquely in our favor, and this year will be a pivotal turning point in crypto investing.

Bernd Schmid has positions in Bitcoin, Ethereum, Hyperliquid, and NEAR Protocol. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Hyperliquid, and NEAR Protocol. The Motley Fool recommends Pump.fun. The Motley Fool has a disclosure policy.