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The Polkadot Fallout Might Prove the Disassociation Thesis Wrong

Notwithstanding the recent crash in cryptocurrencies the valuation spike has been a remarkable one for digital assets. Emerging blockchain networks like Polkadot (CCC:DOT-USD) have proven that cryptos are more than just speculation vehicles.

Polkadot altcoin logo on pink background
Source: shutterstock.com/nurionstd

Don’t get me wrong. Speculation will always be the key component here. But if you want to find fundamental value in the segment, you don’t need to look far.

Of course, not everybody believes in the fundamental argument about cryptos, certainly not to the extent that blockchain advocates do. Specifically, longtime Motley Fool contributor Sean Williams has been a vocal critic of the wild speculation that drives digital assets. Regarding Bitcoin (CCC:BTC-USD), he had the following to say:

I believe investors are also placing their faith in the wrong asset. Over the long term, blockchain technology is where the real value lies. Blockchain can be used to reinvent supply-chain management and expedite overseas payments. But when folks are buying into bitcoin, they’re gaining ownership in digital tokens with zero ownership of the underlying blockchain.

Over time as we (possibly) work our way of this speculative mania, the above idea may gain traction. Whether you’re talking Bitcoin or Polkadot or something else, a clear delineation exists between the blockchain protocol and the associated crypto coin or token.

And I think this concept becomes even more perplexing the more valuable a particular blockchain system is. For instance, you’d be hard-pressed to find something more relevant than Polkadot. As Coinmarketcap explains, “Polkadot is an open-source sharding multichain protocol that facilitates the cross-chain transfer of any data or asset types, not just tokens, thereby making a wide range of blockchains interoperable with each other.”

Essentially, Polkadot replaces antiquated single-lane roadway mechanisms of traditional blockchain networks with a series of multi-lane freeways. It’s profound but is there a market price for decentralized sagaciousness?

Why Polkadot Is Just Another Bitcoin

Whether you believe in the upward trajectory of the crypto complex’s blockchain technology or not, the reality is that the fundamentals do exist. In other words, the designers behind the Polkadot network created the architecture to enhance the broader utility of blockchain systems. So the advocates of the decentralized mean well. There’s no question about that.

However, the inquiry centers on whether the pricing dynamics behind the Polkadot coin reflect the fundamental value of individual cryptocurrencies. Like the fictional FBI agent Fox Mulder, I want to believe. But unless we’re talking about federal elections, just because I want to believe in something doesn’t necessarily make it true.

And if I’m being completely honest with myself, the data seems to truly contradict the notion of the disassociation thesis; that is, as the cryptocurrency market matures, investors will trade individual coins and tokens based on their specific fundamental value.

That happens all the time in the stock market. A prime example is the semiconductor wars between Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD). There’s a reason why so many contemporary investors prefer the latter over the former, mainly dealing with rising product supremacy.

But you don’t see that with Polkadot, particularly in the most recent crypto fallout. As of this writing (and keep in mind the circumstances can change by the time you read this) Bitcoin is down 7% over the trailing 24 hours, while DOT-USD is down 8%. The volatility is little changed yet Polkadot is fundamentally more utilitarian than Bitcoin.

You’d think that if investors were really buying Polkadot coins for their underlying utility, then it wouldn’t matter what happens to BTC necessarily. Yes, Bitcoin is falling due to concerns about China’s indebted property sector, but come on! BTC has become a mainstream financial asset. The same cannot be said about DOT.

A Possibly Long Way from Maturity

Yet again, there’s hardly any difference (at least from where I’m standing at this moment in time) between the volatile trajectory of BTC and DOT. While the blockchains are clearly different, if they end up printing the same charts, does it really matter that they’re different.

Like most philosophical inquiries, it depends on your perspective. As an engineer, the difference is a reflection of the innovation that’s catalyzing the blockchain space. But as an investor, a 7% or 8% loss is still a 7% or 8% loss. You don’t get special tax consideration to whom you lost that magnitude.

And it reminds me of another point that Williams mad: it may take years for blockchain technology to go mainstream. “Specifically, no businesses are willing to make the costly and time-consuming switch to blockchain without the technology being broadly tested – yet companies aren’t willing to make this initial leap to test the technology and prove its scalability.”

A frustrating Catch-22 yet isn’t that what cryptos have largely become, an arena of Catch-22s? Because no matter how fundamentally different Polkadot is to the original blockchain network, the end result maddeningly comes out to be the same.

On the date of publication, Josh Enomoto held a LONG position in BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2021/09/polkadot-fallout-proves-disassociation-thesis-wrong/.

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