The cryptocurrency market is very diverse. Each digital token has its own backstory, basic function, and idiosyncrasies that set it apart from thousands of competing names.
But it’s not just about cut-throat competition. Some blockchain networks offer the digital glue to tie different currencies and services together on a global level into a cohesive computing platform. The most important of these is Speckle ( POINT 3.21% ), the ninth largest cryptocurrency by market capitalization.
Is polkadot a good investment right now? Two Fool.com contributors have found very different answers to this simple question. Read on to see if Polkadot is a good fit for your own investment portfolio.
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A bearish polka face
Rick Munarriz: Polkadot has come a long way in a short amount of time and it’s easy to see why the crypto community dons this polkadot dress. The platform’s ability to run different blockchains independently on a single network is a real eye-catcher. If you’ve heard of the Web3 revolution – a groovy future vision where web services are run by open protocols rather than corporations – Polkadot is one of the biggest stars of the movement. It’s a cool story, but things get sticky once we dive into the risk pool.
Polkadot wasn’t launched until the spring of last year, and that new crypto smell brings uncertainty with it. Digital currencies have come under selling pressure in the past few weeks, but polkadot is the hardest hit denomination among the largest capitalization cryptocurrencies. Polkadot lost almost half of its value in the 30 days leading up to December 5th. The use cases for Polkadot are no longer half as valuable as they were a month ago, but instead of viewing this as a buying opportunity, it could be a red flag about the added risk and volatility crypto investors are taking with Polkadot.
It could get worse. Exciting things are happening at Polkadot, but that doesn’t mean they will translate into higher prices for the crypto itself. Polkadot’s parachains, custom blockchains anchored in the relay chain, are on everyone’s lips. The first Polkadot Parachain auction started in early November, and we have already reported on how the value of crypto has almost halved in the last month. Cops are excited about future steps, including one that will increase its capacity 100x – a necessity given that it can only process 1,000 transactions per second right now. We have seen the sell-ons of “Sell on the News” spike cryptocurrencies, making Polkadot a riskier digital currency in a volatile market.
A tiny teen weenie polkadot with big dreams
Bylund is different: It’s no secret that cryptocurrencies can be volatile. In the case of Polkadot, the token swung between a 52-week low of $ 4.55 and a high of $ 55. The Polkadot price changes were largely an expanded version of the Bitcoin (BTC 1.32% ) Diagram. Polkadot’s daily correlation with Bitcoin’s price movement was actually closer in 2021 than the price change relationship between the Dow Jones industry average (^ DJI 1.08% ) and the Nasdaq composite (^ IXIC 0.00% ) Index.
Polkadot price data from YCharts
My point is that the market generally doesn’t treat polkadot as the unique development platform it is. Instead, price tends to follow the tenor of the broader cryptocurrency market, regardless of what is actually going on in the Polkadot ecosystem. I think this is a mistake that will produce fantastic returns for early investors in the long run as Polkadot’s full business model evolves into its final shape.
In my view, the world of cryptocurrencies and blockchain platforms offers incredible practical uses as different tokens work out specific niche functions that can then be combined into a complete computer system on a global scale. For example, you see a cryptocurrency network that manages a decentralized banking system, with another token handling payment transactions and a third holding smart contracts for each transaction.
In this vision, Polkadot plays the critical role of connecting these separate networks together in a system that is easily accessible for app developers and even easier to use for end users.
Today, Polkadot’s total market value is less than 3% that of One-Trick-Pony Bitcoin. I don’t expect the interconnection network to eclipse Bitcoin’s market cap anytime soon, but this absurd imbalance should smooth out somewhat over time. If Bitcoin returns to its old, high-octane growth, while Polkadot generally makes a bigger share of the cryptocurrency market, Polkadot’s early supporters should reap an outperforming total return. The plethora of parachain launches over the next year should get the party started.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.
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