Ethereum (ETH) or L2 Tokens: Which Are Better?

TheDistinguished Fireportmaster cryptoanalystDr. Michael Nadeau, kicks off his analysis by highlighting Ethereum's progress and the currentbullish market conditions.

Cryptoanalyst Michael Nadeau kicks off his analysis by highlighting Ethereum's progress and the current positive market conditions. He points out that Ethereum is scaling effectively through Layer 2 (L2) solutions, anticipates an ETF trading by summer, and notes influential figures like Larry Fink discussing tokenization. Plus, with potential rate cuts on the horizon, Nadeau sees a strong case for being bullish on Ethereum. He's asking whether investors should hold Ethereum (ETH), L2 tokens, or both.

Analysts have some answers for you.

Which Ethereum (ETH) or L2 tokens are better? Michael Nadeau's series of posts highlights the significant contributions and market positioning of top Layer 2 (L2) solutions in the Ethereum ecosystem. He points out that L2s now hold 15% of Ethereum's total value locked (TVL) and contribute 15% of its transaction fees. Plus, they have 4.7X more active addresses and handle 6.7 times more daily transactions than Ethereum's Layer 1 (L1), with twice the developer activity.

Despite this, L2s have only 2.4% of Ethereum's token holders, represent just 9% of Ethereum's fully diluted market cap, and account for only 2.7% of its circulating market cap. This disparity suggests that L2s might be undervalued relative to their impact on the Ethereum network.

Investor Interest in L2 Tokens

With his deep analysis, the analyst notes that there could be potential investment opportunities in L2 solutions given their growing importance and current undervaluation. Investors might consider diversifying their portfolios to include both Ethereum (ETH) and leading L2 tokens to maximize exposure to the ecosystem's growth and scalability advancements. Nadeau explores whether investors are inclined to hold L2 tokens. He notes that OP and ARB are the most popular L2 projects based on token holders. For context, Ethereum currently has over 123 million token holders.

Correlation with ETH Price

In conclusion, he mentions that L2 tokens also exhibit a correlation with Ethereum's price. ARB has an all-time correlation coefficient of 0.70 with ETH, while OP has a correlation coefficient of 0.61, indicating a significant but not perfect correlation. At present, Arbitrum (ARB) is ranked 38th on CoinMarketCap with a market cap of $2 billion. It has risen 5.79% in the past 24 hours, **trading at $0.820238 with a 24-hour trading volume of $257 million. Whereas, Optimism (OP) is ranked 42th **trades at $1.92 with $248 million in 24-hour activity. Both are showing blazing signs of growth and investor confidence despite the market downturn.

Read Also: Ethereum Supply Surges Post-Dencun Upgrade: What It Means for Investors

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