Arbitrum Amping Up the Layer 2 Scaling Wars

Layer 2s (L2) are scaling solutions built on top of the Ethereum network. With an Arbitrum airdrop speculated to happen soon, they are really starting to heat up as they compete for Total Value Locked (TVL) in a bear market.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

L2 performance comparison

Performance of Layer 2s over the past month. Note: MATIC is technically a side-chain but it still competes for ETH users the same way as any other L2.

The last month has treated three layer twos (L2s) exceptionally well, as MATIC, DYDX, and METIS put in 5%+ gains for the month. On the other hand OP, LRC, and IMX have struggled with large daily unlocks being sold into the market. With a speculated airdrop to occur for Arbitrum (one of the largest L2s by TVL) the L2 scaling wars will continue to heat up and will provide massive opportunities for the savvy crypto investor. Not only will there be incredible volatility to actively trade but for the winner(s), their tokens should fare extremely well in the next bull cycle, this is mainly due to the value accrual that occurs due to network effects.

Despite dour performance, OP remains one to add to the watch lists, as its network activity and TVL continues to grow and the project has significant backing from the Ethereum Foundation itself. DYDX has had strong performance in October so far, yet the "decentralised derivatives" landscape is become super competitive, only look at the rise of GMX on Arbitrum to see what we mean. This competition although healthy can take some of the steam out of DYDX in the coming months and for the patient investor, way out limit orders might be the way to go if you're bullish on this ecosystem.

Aptos launches to nowhere

After much fanfare, speculation and hype, the Aptos blockchain was launched to Mainnet on Wednesday and its respective token went live on major exchanges. After the usual listing pump and dump, the blockchain has quietly faded back into obscurity despite being touted as a "Solana killer". After the usual pandemonium and volatility of the listing itself, the token price has settled between the $7 - $8 USD pocket, and has been stuck in a tight 10% range for the last 48 hours. Expect a slow drift downwards over the coming months but watch for narrative changes, especially as Solana faces continued outage issues. It can be a catalyst for a big push to the upside and a break of the listing high of $12.50.

BTC/USD key levels

Bitcoin remains in a tightly wound range with severely muted volatility. The extent of time this range has been occurring for is eerily reminiscent of mid 2018 where a price shelf occurred at the $6,000 USD handle before dropping a near 50% towards to $3,000. We can't draw too many parallels between the bear market of 2018 and 2022, it's just important to be mindful of what muted volatility has led us to before. For now, I will watch for a reclaim of $19,560 for a move towards $20,554. Whilst we trade under $19,560 the market seems set for a retest of $18,549.

ETH/USD key levels

Ethereum also remains in a tightly bound range. Whilst trading under $1,333 USD, we are anticipating a retest of the $1,241 - $1,190 zone. A reclaim of $1,333 and we can expect a sharp move towards $1,400. Worth noting for ETH, since the merge has occurred in mid September, ETH supply has only grown 0.03%, largely due to an uptick in altcoin activity. (Remembering that higher usage leads to -> higher fees -> higher burn). Should this trend continue it will become deflationary and ETH price can head higher.

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The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

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