Polkadot Could Hit New All-time high After 256% Rally, Here’s 3 Reasons Why

Few reasons, such as steady development and strong fundamentals, hint that Polkadot (DOT) is staging a rally toward a new all-time high.

Polkadot (DOT) recently made a spectacular 256% recovery over the past 56 days. Although the current price of $36.85 is 26% below its $49.80 all-time high from four months ago, the altcoin’s $36.4 billion market capitalization has outperformed Ethereum (ETH) by 66% over the past thirty days.

What is Polkadot

Polkadot is an open-source sharding multichain protocol that facilitates the cross-chain transfer of any data or asset types, not just tokens, thereby making a wide range of blockchains interoperable with each other.

This interoperability seeks to establish a fully decentralized and private web, controlled by its users, and simplify the creation of new applications, institutions and services.

The Polkadot protocol connects public and private chains, permissionless networks, oracles and future technologies, allowing these independent blockchains to trustlessly share information and transactions through the Polkadot relay chain (explained further down).

Polkadot’s native DOT token serves three clear purposes: providing network governance and operations, and creating parachains (parallel chains) by bonding.

Polkadot has four core components:

• Relay Chain: Polkadot’s “heart,” helping to create consensus, interoperability and shared security across the network of different chains;
• Parachains: independent chains that can have their own tokens and be optimized for specific use cases;
• Parathread: similar to parachains but with flexible connectivity based on an economical pay-as-you-go model;
• Bridges: allows parachains and parathreads to connect and communicate with external blockchains like Ethereum.

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.

Here are three reasons behind Polkadot’s recent rally and why it could be on its way to new all-time highs.

1. Polkadot’s integration to DeFi increases

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

For example, 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 September 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.

2. 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.

3. 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 September 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.