This is a segment of the Empire newsletter. To read full editions, subscribe.
What is a good way to gauge how crypto does without being too dependent on price action?
If you ask Kaiko, it’s L2S.
Until now, since the election, the L2 index of the research agency has traded higher, which – albeit – perhaps not one enormous Surprise, given that very crypto received optimistic prospects from November.
The index follows five L2s in Bitcoin and Ethereum. It also follows polygon.
As you can see above, we have piles, optimism, arbitrum, polygoon and starknet in the same bucket.
Keep in mind that L2s have made a comeback so far after he got behind the market last year. And there has been a lot of discussion about whether we have too many L2s.
That does not mean that there is still no question.
For example, take a Galaxy report from November that projects that $ 47 billion in Bitcoin can be “bridged in Bitcoins L2S by 2030” – or about 2% of Bitcoin’s circulating range.
Anyway, back to the data: there may be more positive catalysts in store for L2S, especially if Bitcoin does not dominate the story that much.
“Sector rotation is another potential wind wind for L2 assets. BTC dominated the crypto market in 2024 and established record heights before and after the American elections, while institutional investors flowed billions in spot BTC exchange-bound funds. However, the rally has not gone beyond BTC, as has been the case historically. Although the crypto-market structure has evolved, a rotation to smaller assets probably remains because investors are looking for a higher upward potential through high-beta tokens, ”wrote Kaiko analyst Adam McCarthy.
Taking into account that the changing headwind of the regulations plays a huge factor here – especially in the case of polygon, given that the SEC has previously labeled a security of Matic – and perhaps the future looks a bit brighter.
Although investing in Bitcoin is accessible to the masses, it is difficult to find opportunities behind it, McCarthy wrote.
“Although the broader crypto bull market should not fully extend to altcoins, the evolving legal dynamics could serve as a catalyst for renewed interest. As policy shifts in Washington and investors explore opportunities that go beyond Bitcoin, “his L2S” positioned for considerable growth in 2025 “, he continued.
Man, it’s hard to be pessimistic in crypto.