L2s Surge as Crypto Market Optimism Grows Post-US Election

Crypto's L2s Gain Momentum as Sector Rotation Tailwind Emerges

In the wake of the U.S. election, crypto markets have taken on an optimistic outlook, with Layer 2 (L2) solutions gaining traction. Kaiko, a research firm, has been tracking the performance of L2s through its L2 index, which includes five L2s across Bitcoin and Ethereum, as well as Polygon.

L2s have been making a comeback after falling behind the market last year. While there has been discussion about the potential oversaturation of L2s, demand for these solutions remains strong. A report from Galaxys projects that $47 billion of bitcoin could be "bridged into bitcoin's L2s by 2030," representing roughly 2% of bitcoin's circulating supply.

Kaiko analyst Adam McCarthy suggests that sector rotation could be another potential tailwind for L2 assets. Bitcoin 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 has not yet extended beyond BTC, and a rotation to smaller assets remains likely as investors seek higher upside potential via high-beta tokens.

Regulatory headwinds play a significant role in the growth of L2s, particularly in the case of Polygon, where the SEC previously labeled MATIC a security. As regulatory dynamics evolve, L2s are positioned for significant growth in 2025, with opportunities beyond bitcoin becoming more accessible to investors.