The cryptocurrency market is abuzz with the growing importance of Layer 2 (L2) solutions on the Ethereum network. Michael Nadeau, a renowned crypto analyst, has shed light on the significant contributions of L2 tokens, sparking a debate on whether investors should hold Ethereum (ETH), L2 tokens, or both. In this article, we will delve into the world of Ethereum and L2 tokens, exploring their potential and which one might be the better crypto investment.

Ethereum, the pioneer of smart contracts, has been scaling effectively through L2 solutions, capturing 15% of its total value locked (TVL) and contributing 15% of its transaction fees. L2 tokens have also demonstrated impressive growth, with 4.7 times more active addresses and handling 6.7 times more daily transactions than Ethereum's Layer 1 (L1). Despite this, L2 tokens have only 2.4% of Ethereum's token holders, representing just 9% of Ethereum's fully diluted market cap and accounting for only 2.7% of its circulating market cap. This disparity suggests that L2 tokens might be undervalued relative to their impact on the Ethereum network.

Nadeau's analysis reveals that 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. Arbitrum (ARB) and Optimism (OP) are the most popular L2 projects based on token holders, with ARB ranked 38th on CoinMarketCap and OP ranked 42nd. Both tokens have exhibited significant growth, with ARB rising 5.79% and OP trading at $1.92 in the past 24 hours.

The correlation between L2 tokens and Ethereum's price is also noteworthy. 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. This suggests that L2 tokens might be a valuable addition to an investor's portfolio, providing a hedge against market fluctuations.

In conclusion, the Ethereum and L2 token debate highlights the potential of both assets in the cryptocurrency market. While Ethereum remains a stalwart, L2 tokens offer an attractive opportunity for investors seeking exposure to the ecosystem's growth and scalability advancements. As the market continues to evolve, it will be interesting to see how these assets perform and whether investors will choose to hold ETH, L2 tokens, or both.