As Bitcoin and other cryptocurrency prices continue to rise this year, many traders are looking for indicators of when – or if – the bull market is coming to an end. Some are convinced they have the answer: they are investigating Polkadot (DOT), the native token of the Polkadot blockchain, as a potential canary in the cryptocurrency coal mine.
At press time, the price of polkadot was $ 12.49, according to Messari, up 12.40% over the past 24 hours. It hit its all-time high of $ 13.22 during early trading hours in the US, just six days after Bitcoin price hit a new all-time high.
(Shuai Hao, CoinDesk Research)
(Shuai Hao, CoinDesk Research)
Polkadot’s market capitalization has surpassed XRP and Litecoin and is now the fourth largest cryptocurrency by market capitalization, according to Messaris Asset Tracker.
In the footsteps of EOS 2017
Those who use Polkadot to predict the price of Bitcoin have parallels with another altcoin, EOS.
Sources who have spoken to both CoinDesk and social media users, especially on Chinese-language platforms, see parallels between the 2017 bull market prices for Bitcoin and EOS, the native cryptocurrency for the blockchain platform EOS.IO. They said that Polkadot, a project started by Ethereum co-founder Gavin Wood and considered one of the so-called “Ethereum killers”, shares similar features and goals with the EOS.IO project, which was also born with the goal was to replace it with ether.
A screenshot of a January 14 post on Weibo (China’s Twitter) claiming that Polkadot is one of the so-called “marketing-oriented” tokens that private investors could use to make “quick money” right after Bitcoin’s bull run. “If you miss the opportunity now, you have no chance of getting rich quick after the bull market ends,” he wrote in Chinese. (Weibo)
A screenshot of other posts on Weibo shows warnings from some crypto users in China of the possible demise of Polkadot, citing the similarities with EOS in Bull Run 2017 (Weibo).
After Bitcoin price peaked in the 2017 bull run, many investors and traders took their profits and put them into tokens like EOS, a period of time now known as the “old season”. Prices for EOS reached an all-time high at the end of April 2018. Then the “crypto winter” should have started.
Claims that EOS and Bitcoin prices were related in 2017 and 2018 are controversial.
“Correlation rather than causality,” said Terry Wilkinson, chairman of the board of directors of Tokyo-based investment firm Anchor Value. EOS ”was the latest pie-in-the-sky protocol at the time and caused a lot of hype in this cycle. The bull run didn’t end because EOS stopped pumping. It was kind of a figurehead for this run. “
Block.one created EOS.IO in September 2017. The blockchain offers developers a platform for creating decentralized apps (dapps) with the promise of improved scalability compared to Ethereum. The project was also known for its first coin offering (ICO), which ran from summer 2017 to June 2018 and is arguably the longest-running ICO in history.
Since a large portion of the tokens were handed over to hedge funds to manage and make the majority of investments in the building of the EOS.IO ecosystem, traders and investors took EOS’s price as an indicator of capital inflows into crypto at the time. When EOS price stopped pumping, many took it as a sign to leave the market.
Read more: EOS Revisited: Investors take another look at the longest-running ICO
EOS.IO “couldn’t catch up with Ethereum’s position and hype,” added Jason Kim, chief investment officer at Anchor Value. “Speed alone didn’t convince enough people to buy into EOS’s rosy projections.”
Polkadot’s bull fall at the 2020 Bitcoin rally
Similar to EOS.IO, Polkadot is touted as a promising blockchain that could replace the dominance of Ethereum. This particularly caught the attention of many savvy digital asset investors when decentralized finance (DeFi) exploded last summer.
Most DeFi projects are based on the Ethereum blockchain, the second largest blockchain, which is regarded as a “world computer” due to its versatility and programmability. However, some projects have chosen Ethereum alternatives to improve scalability and end-user experience, with Polkadot being one of the most popular.
Just like many investors bet on EOS.IO in 2017 to get the promise to gain market share from Ethereum, investors have now shown a “strong” appetite for Polkadots DOT, as CoinDesk reported two months ago.
Read more: As DeFi grows, investors expect Polkadot to be the next Ethereum
With that in mind, many have voiced their doubts about the possible correlation of DOT with Bitcoin’s recent bull run. The main drivers of this round differ significantly from 2017, which was then churned up by private investors for the ICO boom.
Today, the market largely agrees that large institutional investors and the explosive DeFi subsector that launched last summer are the main forces behind the recent bull market.
The logic behind the two bull runs is completely different, according to Simons Chen, executive director of investment and trading at Hong Kong-based crypto lender Babel Finance. Investors who bought Bitcoin this round have not taken any profits from many altcoins such as Polkadot.
“[DOT] certainly fills the same place as EOS in the last bull run, ”said Wilkinson. “Since then there have been parallels to be drawn [Polkadot] probably has the highest expectations as a new chain on the block, but in my opinion this bull run differs from the last mainly due to the involvement of institutional funds that were largely empty during the 2017 run. “
And unlike the ICO boom, say many traders and analysts, DeFi’s fast-growing space – semi-autonomous exchanges and lenders – has shown much more potential, with the ambitious goal of one day replacing the traditional financial world.
While the “Summer of DeFi” cooled down, the sector is still quite active. Several DeFi tokens have seen double-digit growth in the past few days. Brian Brooks, the outgoing acting head of the US office of the Comptroller of the Currency (OCC), wrote in a Financial Times about a future of “self-driving” banks supported by the DeFi sector.
The rapid price growth at DOT could therefore only be a reflection of the continued growth of the DeFi, as well as new upgrades and improvements to the project.
Denis Vinokourov, head of research at Bequant, said a recently released roadmap from SushiSwap for 2021, a decentralized exchange that includes integration with Polkadot, could be the reason the price of DOT has increased.
SushiSwap (SUSHI) prices have also increased since the announcement and, according to Messari, rose 14.63% in the past 24 hours to $ 5.5 at the time of writing.