Layer One: Network and application tokens surge as crypto breaks out

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by The Block's Kelvin Sparks and John Wu, Senior Advisor at Ava Labs, Layer One brings you inside the institutional conversations driving blockchain forward.

In our latest episode, we were joined by Matias Antonio, CIO at the Avalanche Foundation, and Eric Lu, Lead Economist at the Avalanche Foundation, to talk about their research into network economics.

In this week’s newsletter, we’re taking a look at altcoin performance during bitcoin’s major breakout, and whether this might signal a broader turning point for the crypto markets.

Major network tokens logged double-digit gains this week, but are valuations really catching up with fundamentals?

The past year for crypto has been defined by a major divergence between asset prices and fundamental metrics. Token prices have stayed heavily depressed, while blockchain adoption across traditional finance and enterprise has grown rapidly.

In conversation last week with The Block’s Kelvin Sparks, Ava Labs CBO John Nahas shared his thoughts on this phenomenon, which he describes as the industry’s puberty phase. Nahas observes that, despite the vast disparity in asset prices, “the wave of adoption, the wave of growth, is really upon us.” He added that the opportunities in the space are now more numerous than ever before.

Over the highly consequential week that has passed since that conversation, some signs have emerged suggesting this latent bullishness is finally coming to the surface. Bitcoin posted its single largest USD weekly gain, breaking above $80,000 before cooling off to $78,000 midweek.

The move was triggered by an announcement from the U.S. Treasury Department, signaling an expansion of its bond buyback scheme. A subsequent short squeeze sent the price of BTC rising sharply; $2.26 billion in short positions were liquidated last Wednesday alone, according to data from The Block, driving the largest cryptocurrency to weekly gains of 23%.

Temporary short squeezes are nothing new for bitcoin, even during a crypto winter. However, some additional indicators suggest that this move may represent a wider thaw for the crypto markets. One such signal is the breadth of the rally — most major altcoins enjoyed significant gains across the same period, driven by a flurry of trading that saw CEX volumes double.

Double-digit gains across a majority of major altcoins helped boost the total crypto market cap by around 20%. Across that period, the average seven-day gain among top-50-ranked network tokens (excluding BTC) was 24.2%. Applications and infrastructure projects fared even better, with an average increase of 31%. The biggest winner, by some margin, was memecoin launch platform Pump.fun, which soared over 60%.

Institutional investment vehicles provided another strong signal. Spot bitcoin and Ethereum ETFs saw their trading volume triple to $29 billion, logging $2.6 billion in combined inflows through what was their strongest week of the year. Meanwhile, leading bitcoin DAT Strategy saw its common stock rise 37%, and Nasdaq-listed Hyperliquid Strategies rose almost 65% to eclipse even the impressive performance of the HYPE token itself.

Altogether, the numbers appear to support Nahas’ notion of pent-up bullishness in the crypto markets. However, it remains to be seen whether this rally will last; key tests remain for bitcoin before an end to crypto winter can be confidently declared. Analysts at CryptoQuant, Wintermute and other firms have highlighted the significance of the $83,000 threshold, a break above which would serve as confirmation for this nascent bull market.

If that breakout is confirmed, then the coming months could see the gulf between token valuations and fundamentals narrow as the market retroactively prices in several years’ worth of real adoption.

Podcast Catch-up: Matias Antonio and Eric Lu on the Avalanche Foundation's Economic Research Agenda

In the Headlines: The stories driving the conversation this week

• Grayscale has debuted the very first Zcash ETF on the NYSE Arca. The fund began trading this Tuesday under the ticker ZCSH, following the conversion of Grayscale's Zcash Trust. Revenues generated from its 2.5% fee will reportedly be fed back into Zcash ecosystem development. Its auspiciously timed launch comes as altcoin ETFs have seen an uptick in inflows, following bitcoin’s bullish breakout.
• Analysts at Bernstein have predicted that bitcoin will rise to new all-time highs of $150,000 in mid-2027. In an investor memo released this Wednesday, the investment firm outlined its currency debasement thesis, predicting that government monetary policy will increasingly drive investors to scarce assets. On longer timeframes, the firm predicts that BTC could hit a cycle peak of $300,000 in 2029, with a bull case as high as $500,000, then $1 million by 2033.
• Kevin O’Leary has been announced as a headline speaker for the Avalanche Summit 2026. The Canadian investor and longtime crypto industry advocate will give a talk on the expanding use cases of blockchain across finance and enterprise. This year’s summit is scheduled for September 16–17 at Chelsea Industrial, Manhattan. Alongside familiar names from the blockchain space, the institution-heavy lineup also includes TradFi giants Franklin Templeton and BlackRock, among others.

Top of the Charts: Altcoin ETFs saw an uptrend in inflows over the course of BTC’s bullish breakout

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Layer One is brought to you in collaboration with Avalanche.