As seen from last month’s Kusama parachain launch, the development of Polkadot (CCC:DOT-USD) continues to move along. So, why does the price of its native token continue to fall? After appearing to find its floor at around $20, it has since pulled back even further. Today, it changes hands for around $14.45 per token.
Why? One could chalk it up to impatience. This is similar to what’s going on with other coins from blockchains that aspire to give DeFi (decentralized finance) leader Ethereum (CCC:ETH-USD) a run for its money. That is, speculators have dived into this token — along with names like Cardano (CCC:ADA-USD) and Polygon (CCC:MATIC-USD) — in a quest for fast profits.
What’s wrong with this strategy? The crypto market continues to be in its doldrums. Forthcoming altcoin upgrades could help foster a rebound. Yet, possible concerns like increased regulation may prevent this from happening. It could be a long road ahead for Bitcoin (CCC:BTC-USD), or the aforementioned altcoins, to take off once again. These lukewarm prospects make it understandable why many are bailing out of Polkadot today.
Plus, there’s another issue here. Yes, Polkadot’s “internet of blockchains” concept sounds promising, but only time will tell whether it’ll become widely used. Considering these factors, all bets are off as to whether buying into DOT’s continued pullback is a smart move.
What the Polkadot Selloff Says About Its Prospects
Is the selloff in DOT-USD a warning sign? Or, are speculators being short-sighted by cashing out too? On one hand, it’s clear that earlier this year, folks priced too much of this token’s possibilities as certainties. That was par for the course with many altcoins, as crypto aficionados and newbies alike bought up once-obscure names in the hopes of “getting in on the ground floor.”
But on the other hand, there’s still much to be said about Polkadot’s long-term prospects. Its key advantages, such as blockchain interoperability, could make it very valuable down the road. As I broke it down last month, instead of one blockchain dominating, DeFi could become an oligopoly. In other words, decentralized finance will be conducted among several large blockchains.
If this ends up happening, an “internet of blockchains” platform like this one will be in high demand. In turn, this will send the DOT price higher over time. That said, this outcome is anything but set in stone. Long-term, Polkadot could be a winner. But in the near term? We could see a continued move lower.
Why DOT Could Fall Further Before It Starts to Rebound
Polkadot may have big potential. After all, it’s clearly making progress, as seen from the recent parachain launch. But barring a repeat of the crypto bubble experienced earlier this year, this blockchain needs to start living up to the high expectations before its token can soar again.
This may mean it fails to find its floor at around $15, like it did when it traded for $20 to $25 just a few weeks before. It’s unclear whether the total market capitalization of DOT-USD ($14.16 billion) is reasonable (given its chances of becoming a major component of the DeFi economy) or if this valuation still prices possibilities as near-certainties.
Again, it’s too early to tell. Data provided by Polkascan shows that active account numbers continue to trend higher, at around 384,000 as of this writing. That’s leaps and bounds ahead of the 64,732 accounts it had at the start of 2021. But with transactions per day still in the high four-figure to low five-figure range, Polkadot’s still far from reaching Ethereum’s daily transaction numbers (over 1 million per day).
Put simply, it’s going to be months (or even years) until it’s clear that this platform will become ubiquitous. In the meantime, this may mean that more investors who are long DOT will decide to throw in the towel.
Given Polkadot’s Uncertainty, Tread Carefully
Right now, “approach cautiously” may be the best advice for cryptos in general. It’s hard to tell if there’s a rebound around the corner, or if the asset class will deliver lackluster returns over the next year. This “on the fence” view extends to the “internet of blockchains” DOT crypto as well.
Already valued as if it’s going to become a major component of the DeFi economy, it’s now up to Polkadot to deliver on expectations. And with the chance it experiences some hiccups along the way, we may see its token price fall to a more opportune entry point.
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On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.