The post Sector rotation ‘tailwind’ for L2s: Kaiko appeared on BitcoinEthereumNews.com.

This is a segment from the Empire newsletter. To read full editions, subscribe. What’s a good way to gauge how crypto’s faring without depending too much on price action? If you ask Kaiko, it’s L2s.  So far, since the election, the research firm’s L2 index has traded higher, which is — admittedly — perhaps not a huge surprise, given that all of crypto took on an optimistic outlook starting in November.  The index tracks five L2s across Bitcoin and Ethereum. It also tracks Polygon.  As you can see above, we have Stacks, Optimism, Arbitrum, Polygon and Starknet in the same bucket.  Keep in mind that L2s are making a comeback so far after falling behind the market last year. And there’s been plenty of discussion around whether we have too many L2s.  That’s not to say that there isn’t still demand though.  Take, for example, a Galaxy report from November that projects that $47 billion of bitcoin could be “bridged into bitcoins L2s by 2030” — or roughly 2% of bitcoin’s circulating supply. Anyway, back to the data: There might be some more positive catalysts in store for L2s, especially if bitcoin doesn’t dominate the narrative as much moving forward.  “Sector rotation is another potential tailwind for L2 assets. BTC dominated the crypto market in 2024, setting record highs before and after the U.S. election as institutional investors poured billions into spot BTC exchange-traded funds. However, the rally hasn’t yet extended beyond BTC, as has historically been the case. While the crypto market structure has evolved, a rotation to smaller assets remains likely as investors seek higher upside potential via high-beta tokens,” Kaiko analyst Adam McCarthy wrote.  Taking into account that the changing regulatory headwinds play a huge factor here — especially in Polygon’s case given that the SEC previously…

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Filed under: News - @ February 7, 2025 4:20 pm