Lesser known ‘Layer 2’ digital tokens are rallying along with the broader cryptocurrency market.
Layer 2 tokens are cryptos that are built on top tier ‘Layer 1’ assets such as Bitcoin (BTC) and Ethereum (ETH).
Cryptocurrency prices are rising on expectations that central banks are done raising interest rates and that Bitcoin exchange-traded funds (ETFs) will soon be approved by U.S. regulators.
Smaller digital tokens associated with Layer 2 projects have a combined market capitalization of about $14.3 billion U.S. and comprise about one-tenth of the total crypto market worldwide.
Matic, the largest Layer 2 token, has seen its price increase 20% to $0.74 U.S. over the past 30 days, according to data from CoinGecko. It’s used to reduce congestion on the Ethereum network.
The next four largest Layer 2 cryptos, called Immutable, Mantle, Arbitrum and Optimism, have seen their prices rise between 9% and 105% over the past month.
The rise in smaller cryptocurrencies comes as Bitcoin’s price has increased 125% this year to $37,500 U.S., and Ethereum’s price has grown 70% to $2,035 U.S.
Layer 2 tokens are smaller and more thinly traded than bigger Layer 1 cryptos such as Bitcoin and Ethereum. This makes them more volatile and unpredictable to buy and sell.
Many analysts warn that Layer 2 tokens are speculative in nature, and many have failed in recent years.
However, other analysts use Layer 2 tokens to gauge the overall investor sentiment in the cryptocurrency market.
