The Fundamentals that are hard to fake: a systematic on-chain signal for the Digital Infrastructure Fund

Research by Wenning Wang

In digital assets, price and fundamentals can move out of step. Sentiment, leverage and narrative can carry a token well beyond what its actual usage justifies, and just as easily punish one that is quietly compounding real demand. For an investor trying to separate signal from noise, the useful question is not what a network is worth in theory, but whether people are genuinely using it.

Two on-chain measures answer that question with unusual honesty. The first is the fees a network earns, in effect what users pay to transact on it. The second is the number of active users actually transacting on it. Both are difficult to fake and expensive to manufacture, which is precisely what makes them valuable. When a network's fees and its active users rise together, real economic demand is building, and history suggests price has tended to follow.

The idea itself is not new. Analysts have observed the link between on-chain activity and subsequent returns for years. The real question is whether that link is reliable enough to invest behind. We set out to answer it ourselves. Across more than a decade of data and thousands of weekly observations spanning the major networks, we found the relationship holds to a high degree of statistical confidence, and that it does so consistently rather than in one fortunate period. Just as importantly, using it to step aside when fundamentals are deteriorating has historically softened the deepest drawdowns, which is where much of the long-term damage in this asset class is done.

Confident that the edge is real, we built it into a disciplined, rules-based model that applies the signal consistently and systematically. Rather than react to any single week, the model weighs the direction and persistence of each network's fee and usage trends across the peer group and commits only once those fundamentals line-up and confirm. That patience is deliberate. It filters out short-term noise and keeps the model on the sidelines much of the time, engaging only when the evidence is clear and the signal is genuine.

There is a good deal of work beneath that simple idea. The model measures each network against a basket of its peers, so it reads relative strength rather than the direction of the market as a whole and is built to add value in both rising and falling conditions. It weighs a network's fundamentals against its trends, and when a signal is confirmed, it deploys a predetermined position rather than scaling exposure to a view. It runs on a weekly cadence with medium-term holding periods, low turnover and no leverage, so the outcome reflects the signal itself rather than borrowed risk.

How the signal reads a network

Discipline of this kind only works if it runs without gaps, so we built it to institutional production standard. The signal runs as an always-on monitor, polling on-chain data through the day from several independent sources. Redundancy means a single provider outage does not blind it, and automated alerts flag any confirmed change to the desk at once. The result is a systematic process that behaves the same way on a quiet Sunday as it does in a volatile week.

We have deployed this signal in the Bluebottle Digital Infrastructure Fund as a dedicated systematic strategy we call Pulse. Pulse is designed to enhance the Fund’s returns, not as a replacement of its strategy. The Fund invests in premium blockchain networks and the infrastructure that supports them, and it already relies on a data-centric process built around real network economics and adoption. Pulse expresses those same drivers, network fees and genuine usage, in a rules-based form. It concentrates on networks with a sufficient history of reliable data, deploys predetermined capital into each signal it generates, and sits alongside the Fund's existing work rather than replacing the judgement of the portfolio management team.

For investors, the appeal is straightforward. Pulse adds a disciplined, evidence-based layer to how the Fund reads the market, one anchored in fundamentals that are hard to manipulate rather than in sentiment. It is transparent in its logic, consistent in its application, and honest about when it does not have a view, which is most of the time. As more networks mature and accumulate the track record the method requires, the set of opportunities it can act on will only widen.

That is the quiet advantage of following fees and users. They are not the loudest signals in the market, but over time they have been among the most reliable.

If the current pulse strategy had been applied since the BDIF’s inception (July 2023), the BDIF would have returned +288% v -19.5%.

Backtested results are hypothetical, gross of fees, and not a reliable indicator of future performance.

Disclaimer

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