MATIC Needs More Than Utility to Justify Its Valuation

Polygon (CCC:MATIC-USD) is one of nearly 5,000 cryptocurrencies and has recently attracted investors’ attention. Its utility has helped it stand out from the crowd, but MATIC is overvalued for its financials.

A concept image for the Polygon (MATIC) crypto.

Source: Shutterstock

It seems that today, everyone with the appropriate technical knowledge and a vision can create an altcoin out of nowhere. Unsurprisingly, that means large number of cryptocurrencies are dead or will become extinct in the future. When the hype is over and demand cools, logic returns to capital markets and investors make wiser decisions — like selling off disappointing cryptos.

Could MATIC survive in this volatile sector to become the new hot cryptocurrency? That remains to be seen. I expect radical changes will soon come for the industry, including regulations and stricter taxation of crypto ownership. With that in mind, let’s take a closer look at Polygon.

MATIC Is Doing Surprisingly Well for an Unknown Coin

MATIC recently underwent a name change. This year, the network was renamed Polygon as it expanded its mission to become Ethereum’s (CCC:ETH-USD) “Internet of Blockchains.”

Is this new brand name a better one, and can it add value to MATIC? Or is it just a marketing trick? Rebranding is meant to add value to the company. It’s an opportunity to conduct further research, use new marketing channels and change up core values to achieve the company’s goals. But it’s unclear how Polygon’s new name will impact the network.

I am astonished that as of June 17, Polygon is ranked 15th on CoinMarketCap. The price of MATIC is at $1.51, and the market capitalization is at $9.4 billion. Since when are billions of dollars so easily made in the investment world? This price makes a virtually unknown altcoin seem more valuable than established, publicly traded companies with attractive dividends.

Many crypto investors seem to mistakenly derive an altcoin’s value from its public price. It is as if they choose to defy the common rules of investing, and the resulting surge in altcoin prices are the new norm. Well, the trend is not normal and will be over soon — and the majority of cryptocurrencies will take a hit as the market corrects.

With this in mind, it seems that Polygon is targeting this group of investors. But does that mean crypto fans should discount the altcoin?

The Story of Surging Altcoin Prices Repeats

Most altcoins follow a repetitive price pattern. They remain on a flat line for a long period of time. Then, out of the blue, they start a meteoric ascent — almost a 90 degree angle on their chart — and early traders are rewarded with massive gains.

In late January, MATIC token was trading at 4 cents. In May, it reached the price of $2.45. Then early investors took their profits and the price corrected by more than 50%. When did early trading in altcoins become so profitable?

The answer is that trading has not been so easy and profitable. I get the idea of investing $100 in something worth 4 cents. Even if the price falls to zero and you lose the $100, it’s no big deal. But with investments, it is a big deal in the sense that your loss is someone’s else gain.

MATIC has followed the altcoin price trend, and its early investors have already taken their gains. But for those looking to invest now, is the altcoin still worth it? A quick look at the network itself may help investors decide.

The Basics of MATIC and its Network

Polygon tries to solve the scalability and fee problems of Ethereum by offering instant blockchain transactions. It hosts decentralized apps and aims to simplify interactions between users. In theory, this is interesting — I believe it could work well.

In addition to its scalability, Polygon boasts a high throughput, user-friendly experience, security, asset interoperability and a one-stop DeFi platform. The network has an extensive toolkit for developers, as applications are part of its core business strategy.

Polygon’s goal is to build a framework that connects Ethereum-compatible blockchain networks and improves their compatibility. I see the value in this, and why investors were drawn to the network and its MATIC coin.

MATIC Is Overvalued Despite Strong Utility

Despite its strengths, enthusiasm about its utility can hardly justify the price of MATIC. It seems as if the altcoin solved all of Ethereum’s problems at once and its price skyrocketed. Even when you factor in the upsides of its tech, the value of the coin still doesn’t match its price.

MATIC is another altcoin that defies the logic of investing, so beware of its largely-speculative recent surge. I recognize the numerous benefits of Polygon, but need to see more business progress before I can justify its $9.4 billion valuation. At least MATIC has utility, but for now, its price is too high from any perspective.

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On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn


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