Should investors pile into Polkadot (CCC:DOT-USD) following recent volatility? Investors are used to hearing about cryptocurrencies by now, but DOT-USD might not be one of them.
Maybe we should keep it that way.
I don’t mean to come across as too harsh on this coin. After all, it hasn’t done anything to hurt me. And I don’t want to discourage investors from seeking new opportunities. However, the crypto climate is simply too volatile to be taking blind shots in the space.
Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD) and others have been hammered lately. There’s likely some margin-related liquidations happening across the board, while the crypto space suffered a big blow when Tesla (NASDAQ:TSLA) CEO Elon Musk said the automaker would no longer accept Bitcoin payments due to the environmental impact of the cryptocurrency.
Fair or not, this has introduced a wave of increased volatility into the blockchain space.
Go for the (Digital) Gold
When we get big selloffs in certain assets, sometimes investors need to go for the gold. In other words, they need to take a few opportunities to try and benefit from what they hope are just short-term gyrations, (however painful they may be).
In this case, it’s more like going for the digital gold, but word play aside, the point is simple: seek quality.
High-growth stocks recently suffered a huge blow too. The best of this group still saw declines of 30% to 40%, while the worst of the group has fallen by 70% or more. I am a believer in buying high-quality assets when they are on sale, even if that sale worsens in the future.
In the case of cryptocurrency, that means buying the dips in Bitcoin, Ethereum, Bitcoin Cash (CCC:BCH-USD) and maybe even Dogecoin (CCC:DOGE-USD) for more aggressive traders. Polkadot coin? That’s a toss up.
It could be high quality, but it’s not well known; it’s not a “go-to” crypto and therefore lacks the liquidity we crave in cases like this. In that sense, we want blue-chip cryptocurrencies when the proverbial crap is hitting the fan.
If investors are crypto bulls — and for anyone following this space, you know that’s a big “if” — they need to be focused on the names that will survive the ups and downs of the market.
In this case, that’s the well-known names. Those are the ones that will draw in the dip buyers.
While some may point out that Dogecoin shouldn’t be on that list, keep in mind, it has a cult-like following and a big supporter in Elon Musk. Fair or not, Musk drives a lot of trends and while Dogecoin may eventually falter, it may have better footing than Polkadot coin.
What is Polkadot?
Click to Enlarge
If we weren’t in the middle of a ravishing bear market in the crypto space, Polkadot could have some legitimacy as a speculative crypto play. From a recent Forbes article:
“Polkadot was founded by the Web3 Foundation in Switzerland and is an open-sourced, decentralized web created by ex-Ethereum CTO Gavin Wood, Robert Habermeier and Peter Czaban. Gavin Wood is one of the founders and is ex-CTO and co-founder of Ethereum.”
Founded by a founder of Ethereum? That bodes well. The company is “on track to deliver the most robust platform for security, scalability and innovation.”
Further, it “provides unprecedented economic scalability by enabling a common set of validators to secure multiple blockchains. Polkadot provides transactional scalability by spreading transactions across multiple parallel blockchains.”
Clearly there is promise with this one. While Polkadot coin may have superior features versus other coins, i isn’t a popular holding at this time. That may seem somewhat irrelevant — like saying a value stock is out of favor — but the simple truth is, it’s still an asset and assets need buyers in order to elevate the price.
In a bull market, lesser known assets have a tendency to fly higher with the pack. But when a bear market hits, most buy orders will be allocated to the blue-chip holdings of the group.
On the chart, notice how Polkadot is below its major moving averages. It’s also finding $26 as resistance when it previously found this level as support. That needs to change in order for the rhetoric around it to change.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
