Is investing in Polkadot a good bet in 2023? All about DOT’s strengths and weaknesses

• Investing in Polkadot has become a viable option since DOT’s market capitalization grew to $6.34 billion.
• DOT’s sentiment changed with a higher number of bullish positions getting opened.

The recent fluctuations in price are largely a function of wider market trends. If you are considering investing in Polkadot, it is prudent to analyze the asset’s inherent strengths and weaknesses in order to make an informed decision.

Read Polkadot’s [DOT] Price Prediction 2023-24

Polkadot [DOT], like the rest of the market, saw significant correction as crypto bellwether Bitcoin [BTC] fell to the $26,000 level. Over the last week, DOT shed more than 8% of its value while the monthly losses surged to 16.55%, as per data from CoinMarketCap.

However, the coin regained some lost ground as it fought the bears to reach $5.36 at the time of publication, a noticeable jump of 2% in the 24-hour period. DOT’s market capitalization grew to $6.34 billion, putting it in 11th place and closing in on the coveted top 10 list.

Primer on Polkadot

Created by Ethereum [ETH] founder Gavin Wood and introduced in 2016 via a whitepaper, Polkadot is a Nominated Proof-of-Stake (NPoS) blockchain network designed to allow blockchains to exchange messages and perform transactions with each other without a trusted third-party.

These interconnected, application-specific layer-1 chains are called Parachains, which are plugged into a single base platform known as the Relay Chain. The Relay Chain acts as the governance layer of the network and can secure, govern, and connect the parachains.

Polkadot is thus a “multichain” composed of blockchains running concurrently to speed up transactions. It is estimated that, on average, the network can process 1,000 transactions per second (TPS). As part of the roadmap shared in September last year, Polkadot announced a major scalability improvement which will allow the speed of the network to increase to 100,000 and 1 million TPS.

Polkadot’s arsenal – Parachains

Polkadot’s unique feature of parachains has attracted the attention of developers and investors alike. Developers can link blockchains to the Polkadot system and even create entirely new blockchains to serve specific use cases.

Polkadot limits the number of parachains it can support to around 100. Since supply is limited, parachains are allocated through auction, governance system, or parachains

As per fresh data from CoinMarketCap, the total number of parachains on the Polkadot ecosystem, including the Kusama network, was 45. The Kusama blockchain is a part of the Polkadot ecosystem, and is used for trying out new features before they are released on the mainnet.

Polkadot and Kusama are very closely related, as they are built on nearly identical codebases.

As per Token terminal, the aggregated core developer count on Polkadot and Kusama was 300 on 11 May. This topped the development activity chart for L1 solutions. Although, this represented a drop of 11% over the last month.

Nonetheless, Polkadot remains one of crypto’s largest developer ecosystems and its full-time developer count has grown by over 16 times since 2018, according to Messari’s Q1 2023 report on the status of Polkadot.

Source: Token Terminal

High-profile partnerships

Polkadot’s collaborations with well-known brands from several industry sectors have played a significant role in the company’s recent growth.

Recently, the world’s largest accounting firm, Deloitte, entered the Polkadot ecosystem. As per a Twitter announcement, Deloitte will utilize the offerings from KILT protocol, a Polkadot parachain. This will support its Know Your Customer (KYC) and Know Your Business (KYB) processes.

1/ @DeloitteCH – the world’s biggest accounting firm – is the latest major enterprise partner to come to the Polkadot ecosystem, choosing cutting-edge tech provided by the @Kiltprotocol parachain to enhance its identity protocols. pic.twitter.com/nkqr0i1s0I

— Polkadot (@Polkadot) May 4, 2023

Apart from this, cloud computing giant Amazon Web Services (AWS) pledged $250,000 to Polkadot Now India, the official Polkadot community in India, according to a report by Financial Express. The grant will fund 50 projects building on the Polkadot network.

Are traders bullish about investing in Polkadot?

The increased number of collaborations had a strong impact on market sentiment for DOT, the ecosystem’s governance token.

Despite the price correction, the weighted sentiment broke into the positive zone. Thus, investors could make bullish bets for the coin in the near term. Moreover, the number of mentions of the coin on crypto-focussed social channels increased in the last 24 hours.

Source: Santiment

Realistic or not, here’s DOT market cap in BTC’s terms

A slight recovery followed the sharp descent in the DOT’s active trading positions, or the Open Interest (OI). As per Coinglass, the nominal value of OI reached $158 million at press time, an increase of 1.25% in the last 24 hours.

Source: Coinglass

As suggested earlier, the majority of the new positions were betting on DOT’s price increase. The sharp increase in the Longs/Shorts Ratio indicated this.

Source: Token Terminal

Fluctuations in price and market sentiment are part and parcel of trading in speculative assets like cryptos. Hence, it is advisable to do your due diligence before looking to invest in them.