Layer 2 Cryptocurrencies Gain Momentum After a Year in the Doldrums
By Medha Singh and Lisa Pauline Mattackal
(Reuters) – Layer 2 cryptocurrencies, native to projects built on top of “Layer 1” blockchains like Bitcoin and Ethereum, have seen a resurgence in the past few months. The revival has been fueled by the anticipation of easing U.S. borrowing costs and the possible introduction of a U.S. spot bitcoin exchange-traded fund, which have contributed to the overall rise in crypto prices.
Tokens associated with Layer 2 projects, which focus on accelerating transactions and minimizing costs, have a combined market cap of approximately $14.3 billion. This amounts to about a tenth of the total crypto market, according to data from CoinMarketCap.com.
Matic, the largest Layer 2 token with a market cap of $6.90 billion, has experienced a 20% increase in value over the past 30 days, rising to $0.74 per token. Polygon, the platform on which Matic is used, aims to reduce congestion on the Ethereum network.
Layer 2 tokens such as immutable, mantle, arbitrum, and optimism have also seen significant increases in value, ranging between 9% and 105% over the past month, with trading prices between $0.5 to under $2 each.
The price performance of these tokens has been quite patchy, with all five tokens experiencing declines between 16% and 86% from their respective all-time highs in the past two years.
Ether, the Layer 1 token associated with the Ethereum blockchain, has also risen by 13.8% to $2,028.80 in the past month.
However, investing in Layer 2 tokens comes with risks, as they are small and thinly traded, making them highly volatile and unpredictable. Matteo Greco, a research analyst at Fineqia International, emphasized the difficulty in picking long-term winners among these tokens.
Despite their speculative nature, Layer 2 tokens have become popular among active traders looking to capitalize on market momentum. Joshua Peck, chief investment officer at TrueCode Capital, believes that active trading is the right approach for these tokens due to the market’s volatility.
The future of Layer 2 tokens remains uncertain, with some analysts viewing them as vital for expanding the practical applications of blockchains like Ethereum, particularly in finance and gaming. However, the market is crowded, and only projects with useful practical applications are expected to survive in the long run.
As the crypto market continues to evolve, the future of Layer 2 tokens will depend on their ability to adapt to changing market conditions and demonstrate their usefulness in real-world scenarios.
I have been writing about crypto for over two years. I have a vast amount of experience in the industry and my work has been featured on some of the biggest publications in the space.
