Three reasons why Polkadot is en-route to a new all-time high even after a 256% rally

Published at: Sept. 14, 2021

The recent 256% recovery by Polkadot (DOT) over the past 56 days has been nothing short of spectacular. Although the price is 23% below its $49.80 all-time high from four months ago, the altcoin's $39 billion market capitalization has outperformed Ether (ETH) by 66% over the past thirty days.

Polkadot is a blockchain network designed to support various interconnected, application-specific parallel chains — known as parachains. This scalability-focused project breaks transactions up into many shards and processes them in parallel, similar to what ETH 2.0 aims to achieve.

Polkadot refers to the entire ecosystem of parachains that plug into a single base platform known as the relay chain. This base layer provides security to the network and handles the consensus, finality and voting logic.

To support parachain launches, users vote for projects by locking up DOT tokens. Currently, only Kusama — Polkadot's "canary" network and an early, unrefined release of Polkadot — is holding its own auctions for these slots. Polkadot is expected to initiate the same process over the next couple of months.

Polkadot's integration to DeFi increases

Polkadot's ecosystem has been growing consistently. On Sept. 8, SubQuery, a decentralized data aggregator, raised $9 million to build Polkadot's first data aggregation layer.

As an example of this integration, the Moonbeam parachain has tokens built on Polkadot's development tool (Substrate). These tokens can be sent seamlessly to Ethereum wallets and smart contract addresses. On Sept. 9, Moonbeam announced a partnership with Lido, a decentralized liquid staking derivatives protocol currently deployed to Ethereum and Terra.

The latest update came from dTrade, a decentralized exchange (DEX). After successfully raising $6.4 million in a seed funding round in May of 2021, the DEX gathered another $22.8 million market-making fund designed to provide "deep liquidity" and backed by some of crypto's most prominent market makers.

Related: ​​Governance proposals and layer-two launches provide a boost to altcoins

Derivatives data shows potential for a fresh all-time high

Technical analysts are quick to make price projections, but investors should analyze Polkadot's derivatives data. For example, a nonexistent futures contracts premium means that investors are not comfortable creating bullish positions using leverage.

DOT's total futures open interest grew from $360 million to $685 million in 30 days. That is a positive indicator because it reflects the willingness of leverage traders to keep their long positions open despite the rally.

In futures contracts trading, both longs (buyers) and shorts (sellers) are matched at all times, but their leverage varies. Eventual imbalances are reflected in the funding rate, and derivatives exchanges will charge whichever side is using more leverage to balance their risk.

Steady protocol development will be the ultimate driver of DOT price

In the first week of September, a healthy dose of optimism surfaced because the eight-hour funding rate reached 0.10%, equivalent to 2.1% per week. Nevertheless, the situation reverted after the 35% price crash on the morning of Sept. 7.

This $22.70 intraday low from a week ago might seem irrelevant since the price of DOT is above $36.00, but traders' appetites for leveraged long positions have yet to recover from this.

The most likely scenario is a "glass half full" one where investors will regain confidence as the project continues to deliver.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Tags
Markets
Altcoin
Market Analysis
Cryptocurrencies
Decentralized Exchange
Polkadot
Futures
Derivatives
Sidechains
Leverage
Related Posts
Data shows Polkadot crashes after reaching $1B open interest — Will it happen again?
Whenever there is relevant growth in the number of derivatives contracts currently in play (open interest), it usually means that more traders are involved. In futures markets, longs and shorts are balanced at all times, but having a larger number of active contracts allows the participation of institutional investors that require a minimum market size. However, in Polkadot's (DOT) case, price crashes have often been anticipated by this indicator breaking the $1 billion mark. The April 17 crash happened after DOT reached its $48.30 all-time high, which led to a $1.2 billion futures open interest. Over the following week, the …
Markets / Nov. 3, 2021
Polkadot (DOT) price rallies 100% and derivatives data points to more upside
Polkadot (DOT) is a blockchain project designed to interconnect sub-chains called parallel chains or parachains. Each application-specific chain built within Polkadot uses the Substrate modular framework, and this is meant to ease the development process. The project has been at the center of developers' and investors' attention for most of 2021, but the sharp market-wide correction on May 19 dealt a heavy blow to the DOT price, and the team has been relatively quiet for the past two months. On July 22, Karura Swap, the first decentralized exchange (DEX) in the Polkadot ecosystem, was launched. The project was created by …
Markets / Aug. 13, 2021
Polkadot futures market flippens Litecoin as its open interest hits $573M
Polkadot (DOT) has been raising eyebrows for the past couple of months as the interoperability-focused altcoins has gained 625% in the past three months. The promise that interoperability between blockchains will be a viable solution to the high Ethereum gas fees plaguing the crypto market has made Polkadot’s development of parachains attractive and the number of projects choosing to build on DOT continues to grow alongside it’s popularity as a staking platform. Polkadot parachains operate similarly to the Ethereum 2.0 sharding proposal, which creates independent blockchains built for a particular purpose. Many projects building on Polkadot, like Moonbeam, Equilibrium, and …
Markets / March 4, 2021
Polkadot futures open interest hits $1B as DOT price reaches a new ATH
On March 24, the price of Polkadot's DOT token corrected by 23% in a brief six-hour period, resulting in $174 million in liquidations across the futures market. This swift downside move also cut the aggregate open interest by 26%. Now that DOT's open interest is climbing to a new record high at $1 billion, investors may be worried that another price crash is on the way. Although the event severely hurt leveraged longs at the time, the token managed to rally 46% in 10 days, reaching an all-time high of $46. The explosive gain caused investors to recoup their confidence …
Markets / April 6, 2021
Cardano’s $1B futures open interest shows ADA is a serious contender
Cardano (ADA) has had an impressive start to the year as it broke through the psychological $1 barrier and made an all-time high at $1.50. The impressive 590% year-to-date gain took place as the network transformed into a multi-asset network, similar to Ethereum, and this could bode well for Cardano's future. The rally's final leg seems to be related to the Coinbase Pro listing, announced on March 16, and this resulted in a renewed push to $1.47 on March 18. As Cardano's price increased, so did its spot trading volume and on-chain transfers, which surpassed Litecoin (LTC). The increased interest …
Markets / March 18, 2021