Polygon (CCC:MATIC-USD) has been doing the opposite of most other cryptocurrencies lately. It is near its highs for the year, not its lows. Many other cryptos are at or near a recent trough or just coming out of a bottom. Not so with Polygon. It recently peaked at almost $2.63 earlier today, Dec. 22, before drifting lower at $2.58 near the end of the day in the U.S.
This is higher than it has been all year. That includes its peak price in May at $2.45, also when other cryptos were peaking. Later, by July 19, Polygon had fallen dramatically to as low as 69 cents.
It has been a slow progression ever since then, despite some breaks, the most recent of which was on Dec. 13. That was when it drifted down to $1.82 per MATIC-USD. From then to today (Dec. 22), the crypto has risen 76 cents, up 41.7% since that low.
As a result, Polygon blockchain now has a very reasonable market capitalization of $18.1 billion, according to Coinmarketcap.com. This gives it the rank of the 13th largest crypto in the world.
Success With Developers
I suspect that the gains that Polygon enjoys reflects two things. First, its success as a blockchain being used and built on by developers with new decentralized finance (DeFi) and other decentralized applications (DApps).
For example, recently Polygon’s website claims huge success on this front. It wrote that the number of Web3 teams using Polygon as an Ethereum (CCC:ETH-USD) migration project blockchain has jumped 100 times in the last year. One reason for this is that Polygon apps now have some of the lowest transaction fees out there.
Polygon is an Ethereum compatible blockchain platform or framework designed to get around some of Ethereum’s major issues. Such as, according to Altcoin Buzz, Ethereum’s high fees, congestion, and clogging risk.
As further proof, Polygon’s site claims, based on data from Alchemy.com, that the number of DApps written using Polygon has risen to 3,000, up from only 30 last year.
Popularity With the Investing Public
The second reason Polygon has risen is its popularity with the general investing public. This can be seen in statistics available from DefiLlama.com. It measures the total value locked (TVL) within any blockchain — including deposits at digital wallets, deposits with various DeFi sites that allow investors to stake their crypto.
The latter works like a certificate of deposit (CD) with banks — with various interest rates and terms — although they do not call it that. (DeFi apps don’t usually want to be seen as paying “interest” or acting as banks, but that is what they are doing.)
The bottom line is that this $5.2 billion is a huge portion of its total $18 billion market cap, about almost 30% (28.7%) of all its value. That is a very good measure of how much people trust and like Polygon.
What To Do With Polygon
Right now it seems that Polygon is on a roll. Its popularity with users and developers should give it a good push going forward into 2022.
So, instead of worrying about the fact that MATIC-USD is up so much this year (e.g. it ended last year at just 1.9 cents per token), investors should be forward looking.
Here is one way to do that. Ethereum now has a market value of about $470 billion, but its DefiLlama TVL is $155.34 billion. That gives it a ratio of market cap/TVL of 3.0 (i.e., $470b/$155b).
By comparison, Polygon has only a slightly higher ratio, and it should be much higher. For example, dividing its market value of $18.1b by its TVL of $5.2b gives it a ratio of 3.48.
However, given how quickly its TVL and DApps in use are growing, it deserves to have at least a one-third higher Cap/TVL multiple compared to Ethereum. That implies its ratio should 4x. This means that its market value should be at least 4 x $5.2b, or $2.8 billion. And we could probably make the case for a 50% higher Cap/TVL multiple. This would raise its value to 4.5 x $5.2b, or $23.4 billion.
So based on this logic, Polygon is worth at least 14.3% more (i.e., $20.8b/$18.2b) to 28.6% more (i.e., $23.4 b/$18.2b) than its present market value. That puts the target MATIC-USD price at $2.95 to $3.32. So, put more simply, look for good things to happen to Polygon over the next year.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.