Cryptoverse: ‘Layer two’ tokens enjoy new life as Bitcoin soars. It’s advanced stuff. After a year in the doldrums, “layer 2” cryptocurrencies, specific to projects built on top of “layer 1” blockchains like Bitcoin and Ethereum, have found new life.

Since the summer, cryptocurrency prices have increased due to expectations of lower U.S. borrowing costs and the potential for a U.S. spot bitcoin exchange-traded fund. As of the end of August, the Bitcoin market had increased by around half.

According to statistics from CoinMaketCap.com, tokens linked to layer two projects—which often seek to reduce costs and speed up transactions—have a combined market worth of over $14.3 billion, or almost a tenth of the whole cryptocurrency market.

According to CoinGecko, Matic, the most significant layer two token with a market capitalization of $6.90 billion, has increased 20% to $0.74 in the last 30 days. It is utilized on the Polygon platform, which lessens Ethereum network congestion.

The following four giant coins, mantle, arbitrum, immutable, and optimism, have increased in value by 9% to 105% in the last month and are currently trading between $0.5 and less than $2 each.

However, from their all-time highs reached during the previous two years, all five tokens have dropped by 16% to 86%. Most layer two tokens are based on the Ethereum blockchain, and Ether is the layer one that connects to it. In the last month, Ether has increased 13.8% to $2,028.80. The proliferation of Layer 2 coins in recent years has made them a dangerous venture. They can be highly volatile and unpredictable due to their tiny size and thin trading. It’s hard to predict long-term winners.

“The growth is not sustainable for those tokens on average… One hundred tries and one win,” stated Matteo Greco, a fintech and digital asset investment business research analyst at Finqia International (FNQ.CD).

“There’s always a bit of thin air behind the moves.” Additionally, price performance varies. In contrast to Bitcoin’s 123% and Ether’s 69% growth, Matic has decreased by around 3% in 2023, while the gaming token immutable has more than quadrupled in value.

SPECULATIVE DETAILS

In addition to serving as a barometer of public opinion on the associated projects, Layer 2 coins are also considered speculative due to their high volatility. When the overall cryptocurrency market rises, they are frequently among the last to place a buy and among the first to sell out when sentiment tourists

Even though layer two tokens are small in contrast to industry leaders like Bitcoin, aggressive traders who want to take advantage of market momentum choose them because of their volatility.

Joshua Peck, the chief investment officer of TrueCode Capital, a hedge fund that invests in matic, stated, “They can be very attractive investments, even though they can be very speculative.” “For a token that’s down 97%, it doesn’t take a lot of capital inflow for it to go three times, four times, or five times in price.”

“Active trading is the right approach for these tokens because the market is moving so much,” Peck stated. It’s unknown where layer two tokens will end up. According to some observers, the initiatives are essential to expanding the real-world applications of blockchains, such as Ethereum, in industries like gaming and banking.

The market is congested, though. The cryptocurrency market surged in 2020, and many projects and tokens were introduced before the market crashed in the 2022 crypto winter.

According to Alyse Killeen, managing partner at venture capital company Stillmark, “the space feels ‘unserious’ right now… in terms of being able to point to an example of something you’d like to run your business or family’s personal finances on.”

It’s a widely held belief among investors that ventures with real-world value will endure.

“The use cases are not as crucial throughout these macrophases. According to Greco of Fineqia International, “the real difference between assets that have decent use cases and assets that don’t is (in) the bear market.” “Assets with good use cases can resist the downtrend even though they get stuck.”