We haven’t even closed two months on the calendar and it already looks like Bitcoin (CCC:BTC-USD) will be the biggest story in finance for 2021. While BTC presents many possible long-term opportunities, you can’t help but notice that the original cryptocurrency is a very mature asset. In other words, for a $50,000 asset to double, it would need to hit $100,000 – a tall order. That’s why alternative crypto coins like Polkadot (CCC:DOT-USD) have captured investor interest.
Primarily, it’s in the numbers. On a year-to-date basis, Bitcoin has gained roughly 67%. That’s a great performance but it pales in comparison to Polkadot, where the underlying DOT coin has gained 255%. Moreover, it sports a price tag of around $33 at time of writing. Psychologically, this is far more appealing than BTC’s $50k price tag or even the Ethereum (CCC:ETH-USD) token’s $1,600 entry point.
Certainly, psychology plays an important role in determining which assets will rise, especially in the present environment. However, the narrative for Polkadot isn’t entirely narrative driven. In fact, there is a fundamental case for DOT — at least as far as cryptocurrencies are concerned.
A Brief Rundown on Why Polkadot Matters
As the first cryptocurrency, Bitcoin introduced the world to the concept of the blockchain. Its textbook definition is a decentralized public distributed ledger. But what exactly does that mean?
I know I’m going to offend blockchain purists, but the practical explanation is that a blockchain is simply a method of record keeping that is available to the public. Conceptually, it’s not dissimilar to a Google doc that you share with your work colleagues.
But one of the key differences about the blockchain is its immutable nature. Once transactions are locked into the blockchain, there is no going back and changing it. Moreover, the ability to enter data in a standard blockchain system is not confined to a central authority. Rather, data entry requires consensus among nodes or computers that store the transaction history of the blockchain.
Therefore, the Bitcoin blockchain facilitates peer-to-peer financial transactions without the need for a human intermediary. Essentially, the blockchain architecture acts as its own trustworthy, immutable and perfect digital intermediary.
But like other first-to-market technologies, the original blockchain had flaws, primarily difficulty to scale and inefficient protocols. To resolve these issues, the Ethereum team developed its own blockchain that provided the scale and efficiency that developers crave.
Furthermore, Ethereum’s unique innovations brought about smart contracts. Rather than exclusively focusing on payments, other business transactions such as real estate deals or legal proceedings can benefit from digital intermediaries, thereby eliminating the middleman.
However, even Ethereum has its issues. Long story short, the platform can get onerous for developers building complex projects. Thus, the concept of Polkadot was born. Labeled as the blockchain for blockchains, Polkadot opens new efficiencies for developers by allowing multiple disparate blockchain systems to operate together.
I’m not doing the concept justice. But to be very simplistic, Polkadot allows developers to stack multiple blockchains together while maintaining harmonious interoperability rather than building a single unwieldy, convoluted and expensive blockchain project.
Is Utility Alone Worth $30 Billion?
Ardent cryptocurrency supporters will argue that Polkadot, not Ethereum, will be the true Bitcoin alternative. It’s possible that Polkadot is the most utilitarian blockchain system available. But is utility alone worth $30 billion?
Because that’s the market capitalization of the underlying DOT token, which raises some interesting questions. After a robust debut, artificial intelligence and big data specialist Palantir Technologies (NYSE:PLTR) currently sports a market cap of $49 billion, not too far off from DOT’s valuation.
Is Palantir’s actual business and utilitarian value worth only a 63% premium over Polkadot’s innovation? Maybe it is, maybe it isn’t.
Or consider content delivery network provider Fastly (NYSE:FSLY). It serves a critical need, particularly during this pandemic when people are working from home. FSLY has a market cap just over $8.5 billion. Is Polkadot really worth nearly four times Fastly stock?
I believe the main problem with attempting fundamental analysis on cryptocurrencies is that the traditional market doesn’t really value platforms as much as what companies do with said platforms to solve real-world problems.
And this is where Polkadot gets dicey – how many blockchain projects do we need? Because it’s one thing to have the technology; it’s quite another to do something with it.
A Gamble and an Interesting One at That
Here’s my brutally honest take about Polkadot – I think it’s a long-term buy.
However, it’s not because I think its blockchain for blockchain innovation will change the world. Because of the open-source nature of blockchain technology, someone will always come up with something better.
Rather, the DOT token is pure speculation based on sentiment for the cryptocurrency market. Despite Bitcoin’s severe crash, the token has moved steadily higher, personally catching me by surprise. With that kind of powerful demand, you probably want to add Polkadot tokens to your digital portfolio, just in case.
On the date of publication, Josh Enomoto held a long position in BTC and ETH.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.