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Polkadot (DOT) Price Prediction: Decline to 2020’s $3.50-$6.0 Range Increasingly Likely

·5 min read

Key Points

  • Like many cryptocurrencies, Polkadot is down sharply this year with losses of nearly 75%.

  • Polkadot’s medium-term technicals suggest a growing risk of a drop back to its 2020 $3.50-$6.0 ranges.

  • Past history suggests DOT can surge 400-700% very quickly, meaning rapid recovery is possible in late-2022/early-2023 should macroeconomic conditions improve.

Polkadot’s Difficult Year So Far

As has been the case for most major cryptocurrencies, it’s been a tough year so far for the native token of the self-described layer zero metaprotocol blockchain technology Polkodat. At current levels under $7.0 per token, DOT is down about 75% from the $26.66 level that it closed last year.

Its losses versus last year’s record highs in November 2021 above $55 per token are even more staggering. The cryptocurrency has pulled back about 87% from these highs. Investors have been dumping assets they deem to be highly speculative, like most cryptocurrencies (a nascent technology) and US tech stocks in favor of safer assets (like USD) this year.

There are two main reasons for the sudden onset of risk aversion since last November. Firstly, inflation across most of the global economy, including in the US, has proven not to be “transitory” as many economists and policymakers claimed in 2021.

In fact, it’s been anything but. Inflation across most developed and developing economies has accelerated in 2022, worsened in part by Russia’s invasion of Ukraine and its impact on food and energy prices, as well as ongoing stop-start lockdowns to contain Covid-19 in China.

As a result, central banks across the world, including the most important of them all – the US Federal Reserve – have begun aggressively tightening monetary policy and financial conditions. Just as super-easy central bank policy was one of the key drivers of the bull market in speculative assets like Polkadot in 2021, the withdrawal of that super easy policy has been the main driver of the recent bear market.

Concerns about a slowing global economy with consumers hit by a cost-of-living crisis amid surging inflation has worsened things. Many economists are calling for a recession in the US and European economies this year and next.

Polkadot Likely to Fall Back to 2020 Levels in 2022

Looking at Polkadot from more of a technical angle, the cryptocurrency is looking bearish. A downtrend has been acting as a ceiling since mid-May, while the 21-Day Moving Average has also been capping the price action.

Since mid-June, DOT appears to have formed a pennant structure. Repeated failures to get above its 21DMA suggest a downside break of this pennant structure is more likely than an upside break.

A near-term break below recent lows in the $6.60 area would open the door for a swift test of current annual lows around $6.35. This is a key area of support going all the way back to late 2020/early 2021.

Should risk appetite in the broader crypto space further worsen in the sessions/weeks ahead, perhaps due to adverse macro developments, DOT is at risk of falling below this key support level. That would open the door to a swift drop back to 2020 levels in the $3.50-$6.0 range.

DOT/USD’s potential drop back to 2020 levels. Source: FX Empire
DOT/USD’s potential drop back to 2020 levels. Source: FX Empire

Polkadot to Recover Back to ATHs in 2023/24?

Polkadot is viewed by many within the crypto space as one of the most innovative blockchain technologies out there. Specifically, through its use of its central relay chain and multiple para-chains, Polkadot sets out the cure crypto’s lack of blockchain interoperability.

According to CoinMarketCap, “Polkadot was designed to provide a foundation for a decentralized internet of blockchains, also known as Web3”. If the transition to Web3 is set to be as drastic a change as the transition from Web1 to Web2 (i.e. a consume-only internet to a create and share on social media internet), then blockchain’s like Polkadot stand to benefit substantially.

That suggests that once macroeconomic conditions improve and risk appetite returns to the crypto space, Polkadot is a prime candidate to perform well. Polkadot was only launched in May 2020, so it’s difficult to predict its future performance based on long-term technical analysis as is possible with other cryptocurrencies such as Bitcoin.

But observing how DOT has behaved in the past is telling. In the space of less than four months from December 2020 to March 2021, the cryptocurrency had rallied as much as 660% from around $5.40 to as high as $42.70.

Polkadot then rallied from close to $10 to as high as $56.22 in the space of five months from July 2021 to November 2021, gaining as much as 430%.

DOT/USD has posted swift rallies in the past. Source: FX Empire
DOT/USD has posted swift rallies in the past. Source: FX Empire

So the potential for swift DOT surges is there.

Imagine a recession in late 2022 into 2023 helps bring global inflationary pressures back under control. Imagine this eventually gives central banks like the Fed, who will have raised interest rates aggressively through the end of 2022, to start subsequently easing interest rates in late 2023. Say this helps the economy recover back to positive growth.

This could potentially be a very bullish outcome for risk assets like global equities (particularly speculative stocks in the tech sector) and cryptocurrencies.

Add into the mix the likelihood that policymakers in key markets like the US and Europe begin introducing crypto-friendly regulations to contain risks to investors in the stablecoin market/in Decentralized Finance.

If history can repeat itself and DOT posts another 400-700% rally, that would imply that it could surge to around $34-$55 per token in the space of a few months, perhaps as soon as the end of 2022/early 2023.

This article was originally posted on FX Empire