The price of Polkadot’s token – DOT – dropped by more than 18% on 7 September, as cryptocurrencies sold off across the board in a flash crash with El Salvador’s adoption of bitcoin (BTC) as legal tender.
The DOT crypto price had been trading at its highest level since May before the drop, with cryptocurrencies having been on a bull run since late July.
Polkadot is gaining popularity as the project aims to decentralise the web by connecting blockchains and allowing them to interact, which will enable new applications like certain decentralised finance (DeFi) services.
Have you heard of Polkadot and are you wondering whether its native coin is a good investment for the future after the price retreat?
This article looks at the latest project developments and the outlook for the DOT to USD price for the remainder of 2021 and beyond.
Polkadot’s role in the blockchain ecosystem
What is Polkadot? The Polkadot network was created in 2016 by Gavin Wood, co-founder of Ethereum. The project is being developed by the Switzerland-based Web3 Foundation, which aims to facilitate a fully decentralised web. Web3 refers to the next-generation internet, where decentralised platforms give users control over their privacy and personal data rather than large corporations.
According to the project website, “researchers from Inria Paris and ETH Zurich, developers from Parity Technologies, and capital partners from crypto-funds such as Polychain Capital are all working together to develop a superlative realisation of Web3, with Polkadot at its core”.
The DOT cryptocurrency is the digital token the network uses for staking, bonding and governance. Staking is the process of receiving cryptocurrency as a reward for holding funds in a digital wallet to support the operations of the blockchain. Bonding involves locking in a certain number of tokens for a specified period. Tokens are used by the Polkadot community for governance to vote on changes to the network. Unlike networks such as Bitcoin, Polkadot can be upgraded to fix bugs or introduce new features without requiring a hard fork, or spinoff, making it easier to adapt.
The first block of the project’s Relay Chain launched in May 2020 and the Polkadot coin was rolled out in a phased process.
Polkadot runs alongside the Kusama network, which was released as an initial version of the same underlying code to act as a live pre-production environment to test new features. There are also use cases for Kusama as a standalone network for early-stage startups, while Polkadot focuses on enterprise and business-to-business financial applications that require bank-level security and stability. They are based on the same multichain architecture, but the networks are expected to evolve independently.
Polkadot aims for blockchain interoperability
The Web3 Foundation granted $4.1m to 145 proposals in 2020 as part of its ongoing grants programme to support the development of the Polkadot ecosystem.
The Polkadot development team said in a blog post that the project “was designed as an underlying infrastructure to realize the kind of scalability, interoperability, and security needed to enable the multichain future, allowing diverse layer-1 parachains to interact and communicate with each other within the ecosystem”.
But the team also noted that Polkadot allows parachains (parallelisable chains which are a simpler form of blockchain) and networks like Bitcoin or Ethereum to interoperate via bridges.
A bridge creates a compatible connection that allows users to securely transfer tokens or data between blockchains, whether they are public or belong to private enterprises. Several such bridges have been developed or are in development to connect Polkadot with other blockchains and the development is committed to connecting communities, aiming “to provide reusable development components that make it effortless to build and deploy bridges to other blockchains,” the post said.
There are two primary types of bridge: centralised or decentralised. Centralised bridges are based on trusting a centralised authority to operate, while decentralised, or “trustless”, bridges do not have a single authority but rely on the code to manage the interaction between blockchains. Using trustless bridges, blockchains can seamlessly communicate and transfer data from smart contracts privately and securely. Combining features and smart contracts from different parachains will enable new innovation in DeFi applications.
In July, the Kusama community voted to upgrade the runtime of Kusama’s first featureful parachain, Statemine, after testing. Following the upgrade, any user will be able to create assets and non-fungible tokens (NFTs) with a deposit of one Kusama (KSM) token for each asset class. A future update will allow users to pay fees with any asset and without any KSM.
Following an initial coin offering (ICO) in 2017, the DOT token launched in August 2020 at a price of $2.70. The Polkadot token price fluctuated between $3 and $5 for the rest of the year, then climbed at the end of December from the $5 level to the $8 level as the crypto markets began to rally.
The coin’s value soared to an all-time high of $49.69 on 15 May, before dropping back to $10.42 on 20 July when the cryptocurrency markets collapsed from their rally. On 7 September, the coin traded up to an intraday high of $35.67, but dropped to the $27 level as the markets fell. DOT ended 8 September at $27.71.
What do the Polkadot project’s recent developments mean for its native cryptocurrency? What will DOT be worth in 2021, and how high will the coin’s price go over the longer term?
Polkadot crypto price prediction: can the coin rebound in the future?
On 9 September, technical analysis from CoinCodex was neutral for the short term, with 15 indicators giving bullish signals compared with 11 bearish signals. The 3-day to 10-day simple moving averages are giving sell signals, along with the Average Directional Index and the Hull Moving Average. The Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) were neutral.
Algorithm-based online forecasting service WalletInvestor’s DOT coin price prediction indicates that the price could rise from the current $27 level to $42.03 by the end of the year. But it projects the price will fall back to $37.96 by the end of 2022, although it could later rebound to reach $49.05 by the end of 2025.
In its Polkadot prediction, DigitalCoin estimates that the price will rise from an average of $44.24 in 2021 to $52.73 in 2022, reaching an average of $89.59 in 2025 and, in the longer term, climbing to $132.04 in 2028.
PricePrediction is bullish in its long-term Polkadot forecast, projecting that the price will average $136.96 in 2025, up from $32.26 in 2021, and soar to $861.37 by 2030.
It’s important to keep in mind that cryptocurrency markets remain extremely volatile, making it difficult to accurately predict what a coin’s price will be in a few hours, and even harder to give long-term estimates. As such, analysts and online forecasting sites can get their predictions wrong.
We recommend that you always do your own research and consider the latest market trends, news, technical and fundamental analysis, and expert opinion, before making any investment decisions. And never invest more than you can afford to lose.
How to buy DOT coins in 2021
If you are looking to invest in the coin now, you can buy the coin on cryptocurrency exchanges like Binance and Coinbase. You can then withdraw the coins to a secure software or hardware wallet for safekeeping.
Alternatively, you can trade DOT using contracts for difference (CFDs) on Capital.com. With CFDs, you can speculate on the coin’s price without buying the token itself. If you expect the price to rise you can take a long position and if you think it will move lower you can go short and still make a profit on the trade if the price falls.
Trade DOT to US Dollar – DOT/USD CFD
As a leveraged product, CFDs are designed to maximise gains, which can be large on volatile products such as cryptocurrencies. However, you should be aware that using leverage also increases the size of the loss if the price moves against your position.
Make sure you understand how CFDs work and do your own research before you begin, and never invest money you cannot afford to lose. Learn more about cryptocurrency CFDs with our comprehensive guide. Sign up for an account with Capital.com to stay on top of the latest Polkadot news, price analysis and forecasts, and start trading the coin today.
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