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Bitcoin L2 Boom or Bust? The Harsh Truth from Muneeb Ali

Will Bitcoin Layer-2 solutions boom or bust? Muneeb Ali predicts that most Bitcoin L2 projects will fail within three years. Discover why, which projects might survive, and how Bitcoin's dominance is shifting the crypto landscape.

Bitcoin Layer-2 (L2) solutions have been a hot topic in the crypto space, promising to scale Bitcoin while maintaining its security. However, according to Muneeb Ali, co-founder of Stacks, the reality is far from rosy. He predicts that more than two-thirds of Bitcoin L2 projects will fail within the next three years, as the initial excitement fades and projects struggle to sustain themselves. Is the Bitcoin L2 boom coming to an end, or will a select few projects emerge stronger than ever?

Bitcoin’s scalability has always been a challenge, and L2 solutions were seen as the answer. With the emergence of projects like Stacks, Rootstock (RSK), and Lightning Network, Bitcoin has taken steps toward greater usability beyond being a store of value. But as Ali points out, the road ahead will be tough, with many L2 projects struggling to prove their long-term viability. The industry is shifting from rapid innovation to a stage where only the strongest will survive. Many early adopters are now reassessing their investments, questioning whether L2 solutions can truly revolutionize Bitcoin in the way they once believed.

Table of Contents

The End of the "Honeymoon Phase"

Ali believes the Bitcoin L2 ecosystem is entering a new phase where only the most resilient projects will survive. In an interview with Cointelegraph at Consensus 2025, he stated:

“The honeymoon phase [for Bitcoin L2s] is a little bit over.”

This marks a shift from the initial enthusiasm that surrounded Bitcoin L2s. At first, the idea of scaling Bitcoin without compromising security excited investors and developers alike. However, as the reality of development challenges, market adoption, and regulatory uncertainty set in, many projects have struggled to maintain momentum. Early-stage funding helped these projects gain traction, but sustainability is now the biggest hurdle. The crypto space has seen similar cycles before, where hype is followed by a harsh consolidation phase. Those who cannot adapt will be left behind, while a select few will emerge as leaders in the space.

Why Most Bitcoin L2 Projects Will Fail

Ali points out several reasons why most Bitcoin L2 projects are unlikely to survive:

1. Lack of Long-Term Commitment

Many projects jump on the hype train but lack a clear vision or dedicated team to build beyond the initial excitement. Ali suggests that only mission-driven projects will persist:

“My guess would be less than one-third (of all Bitcoin projects) will be around.”

In the early days of any new technology, there’s an influx of opportunistic projects looking to capitalize on market enthusiasm. However, history shows that only those with strong fundamentals and a dedicated team can last. Many L2 projects struggle with funding once the hype dies down, leading to stalled development and abandoned roadmaps. The lack of user adoption further accelerates their downfall, as investors move on to newer opportunities. Without sustained innovation and long-term planning, these projects risk becoming obsolete, much like many ICO-funded ventures from the 2017 boom.

2. Harsh Market Conditions

Building on Bitcoin is challenging, and many L2 projects are now realizing that sustaining themselves in a competitive market is harder than expected.

Unlike Ethereum, where smart contract development is more flexible, Bitcoin’s architecture presents unique challenges for developers. Creating decentralized applications (DApps) and scaling solutions requires more effort, and many teams underestimate the difficulty of integrating with Bitcoin’s security model. Additionally, the broader crypto market’s volatility makes it difficult for L2 projects to maintain steady growth. Investors are quick to pull out of projects that don’t show immediate returns, leading to liquidity crises. With regulations tightening worldwide, some L2 projects may also face compliance hurdles that further stifle their growth.

3. Capital Rotation in Crypto Markets

Ali explains that while Bitcoin attracts new capital from institutional investors, other L1s and L2s are often competing for the same pool of crypto-native funds. If trends like memecoins gain traction, capital tends to rotate away from infrastructure projects, further straining L2 growth.

The crypto market operates in cycles, where investor interest shifts between different sectors. Right now, Bitcoin is attracting institutional money through ETFs and large hedge funds, while retail investors are chasing high-risk, high-reward opportunities in memecoins and AI-related projects. L2 solutions, which require significant development and user education, often struggle to capture attention in such an environment. This puts them at a disadvantage, as they rely on continuous funding and adoption to sustain their networks. If capital continues to move toward trend-based investments, many L2 projects may struggle to justify their existence.

Stacks: A Bitcoin L2 That’s Thriving

Despite the bleak outlook for most Bitcoin L2s, Ali remains confident in Stacks’ future. Stacks recently completed the Nakamoto upgrade, which:

  • Enhances user experience.

  • Ensures 100% security from Bitcoin’s hash power.

  • Provides faster transaction confirmations.

Stacks stands out because it has been built with a long-term vision, rather than relying solely on hype. The project has consistently delivered upgrades that improve security and usability, making it more attractive to developers and investors. With Bitcoin’s growing institutional adoption, Stacks is positioning itself as a key infrastructure layer for future applications. Unlike many short-lived L2 projects, Stacks has already proven its resilience by surviving multiple market cycles. If Bitcoin L2s have a future, Stacks will likely be one of the leading players shaping it.

Bitcoin’s Growing Dominance Over Ethereum & Solana

Ali predicts that Bitcoin’s dominance over Ethereum and Solana will increase. The key reason? Bitcoin continues to attract fresh capital from outside the crypto industry, such as institutional investments and ETFs. In contrast, many altcoins are dependent on recycling capital from within the crypto space.

“Bitcoin is probably the only asset that has net new buyers.”

While Ethereum and Solana remain dominant players in the smart contract space, their long-term sustainability depends on user retention and continued innovation. Bitcoin, on the other hand, benefits from its reputation as the most secure and decentralized blockchain. Institutional investors are increasingly viewing Bitcoin as a digital gold, bringing new capital into the ecosystem. This influx of money strengthens Bitcoin’s market position, while many altcoins face the challenge of retaining users amid shifting trends. Over time, we could see Bitcoin L2s taking over some of the functionalities that Ethereum and Solana currently provide.

The Future of Bitcoin L2s: Boom or Bust?

While Ali’s outlook is pessimistic for most Bitcoin L2 projects, he sees a future where a handful of high-quality projects survive and thrive. Those that can deliver real utility, security, and institutional-grade infrastructure may emerge as long-term winners.

Potential Winners:

✅ Stacks (STX) – Proven resilience, strong upgrades, and growing adoption.
✅ Babylon – Another promising Bitcoin L2 project with a focus on security.

Likely to Fail:

❌ Projects that rely solely on hype without solid technical foundations.
❌ L2s that fail to secure enough adoption and liquidity.

The reality is that only those with strong fundamentals, continuous innovation, and clear use cases will thrive. Many projects that launched during the L2 hype cycle may not make it past the next crypto bear market. Investors should be cautious and look for projects with solid backing, real-world applications, and a long-term vision.

Conclusion

The next few years will be crucial for Bitcoin L2s. While the hype may be fading, the strongest projects will use this period to build, innovate, and solidify their position. Ali’s warning serves as a reality check—most Bitcoin L2s won’t make it, but the ones that do could reshape Bitcoin’s future.

As Bitcoin continues to grow, L2 solutions will play an essential role in scaling the network and expanding its use cases. However, not all projects will be able to keep up with the challenges ahead. Investors and developers must carefully assess which L2 solutions have the staying power to succeed. Whether Bitcoin L2s will boom or bust depends on the ability of these projects to move beyond the hype and deliver lasting value.

FAQs

What are Bitcoin Layer-2 (L2) solutions?

Bitcoin Layer-2 (L2) solutions are protocols built on top of the Bitcoin blockchain to enhance scalability, reduce transaction costs, and improve functionality while maintaining Bitcoin’s security. Examples include Stacks, Lightning Network, and Rootstock (RSK).

Why does Muneeb Ali believe most Bitcoin L2 projects will fail?

Muneeb Ali predicts that over two-thirds of Bitcoin L2 projects will disappear within three years due to a lack of long-term commitment, harsh market conditions, and the difficulty of building sustainable businesses beyond the initial hype.

Which Bitcoin L2 projects are likely to succeed?

Ali highlights Stacks and Babylon as two of the most promising Bitcoin L2 solutions due to their strong technical foundations, continuous development, and real-world adoption.

How does Bitcoin’s dominance impact Ethereum and Solana?

Ali suggests that Bitcoin is attracting more institutional capital, unlike Ethereum and Solana, which largely rely on existing crypto-native funds. This shift in investment could increase Bitcoin’s dominance over other blockchains.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

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