Polkadot Is Still Down More Than 50%. Should You Buy the Dip?

The Polkadot (CRYPTO: DOT) cryptocurrency is roaring these days. The native coin of the Web3 Foundation gained 51.3% from April 9 to May 12.

But the picture changes if you zoom out a bit. This jump is actually just a small recovery from a deep dip. The coin's price is still down 52.6% from December's 52-week peak. It's also more than 90% below Polkadot's all-time highs, recorded just before the inflation panic started in November 2021.

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Is Polkadot stuck in a long-term downtrend, or is this crucial Web3 component poised for a big comeback? Let's find out.

Polkadot's bull case

In a Web3 world, social media networks are downgraded from the dominant online stature they hold today.

Content creators will have more control over the text, music, movies, and other media they create, with fewer go-betweens making several pennies on every buck of original content. Ordinary people should gain more direct control over how they consume content, protect their privacy, and manage personal finances. Again, everything should work faster, with lower fees, and with blockchain-based technology doing what centralized banks do now.

Polkadot was designed to play many important roles in this conversion of online interaction systems. It features a complex, powerful transaction ledger with many supporting data lists, with the ability to communicate with many other blockchain systems. The upcoming Polkadot 2.0 version will feature a much faster and more complete facility for executing smart contracts. In recent demonstrations, Polkadot co-founder Gavin Wood has shown the classic Doom game running at full speed in a pre-release version of this JAM virtual machine system, running on his laptop. The full implementation will have access to thousands of high-powered server systems in a global network.

I can only imagine what developers might do with this blockchain-based supercomputer. This should be more than enough to get the Web3 revolution off the ground, and then some. That would be good news for Polkadot investors, since the functional coin should gain more value as its real-world usage increases.

Why Polkadot Could Struggle

Some early Polkadot investors are losing hope about the proposed Web3 revolution.

The Web3 vision has been in the works for more than a decade. Gavin Wood coined the term in 2014, but the fundamental ideas had been under discussion for years even then. That's an eternity in the fast-moving technology world. Where are all the game-changing Web3 apps and platforms that will turn the online world upside down?

And let's say the Web3 revolution really is coming. Polkadot faces a ton of competition for powering the technical platforms behind those privacy-loving apps. I mean, Sony brought the first Betamax video tapes to market a year before JVC introduced the VHS alternative, and Betamax had the backing of Japan's regulators at the time. Yet, VHS won the "video wars" of the 1970s. The favored industry standard doesn't always win in the open market. In this case, alternative development frameworks from Solana (CRYPTO: SOL) or Avalanche (CRYPTO: AVAX) might steal Polkadot's Web3 throne. If they can't fill every Polkadot function today, their backers could catch up as their ecosystems mature.

Between the slow Web3 rollout and the rising tide of potential head-to-head rivals, it's not surprising to see Polkadot's coin price swooning.

Image source: Getty Images.

What is this coin really worth?

Pinning fair values on investments is both an art and a science. Getting it right involves many assumptions, some informed guesswork, and a bit of luck. The world's best investors don't get every call right, and they rarely try to pinpoint exact price targets in the long run.

And Polkadot's market value relies on two key factors:

• How often does this coin get used in actual applications, generating a tiny stream of usage fees for every transaction?
• How much is each transaction worth to the Polkadot system and its investors?

The first component is off to a slow start. Few apps are built around the Polkadot framework today, and the cryptocurrency is still in its infancy from the real-world usage point of view. Daily usage volumes have been trending down instead of up in recent months. In the last 30 days, Polkadot fees were $750 per average day. There aren't a lot of money-making transactions happening so far. The JAM-based Polkadot 2.0 system is designed to handle 1 million transactions per second, not a couple of hundred per day.

The daily trading volume is much higher, around $360 million per 24 hours. In other words, Polkadot is acting more like a speculative investment than a real-world business tool so far. The coin is essentially worthless in this real-world utility perspective. Polkadot usage just isn't a money-making operation yet.

But that's a short-sighted projection. I'm convinced that the Web3 era will come someday. Will it be in the next economic recession, or with the launch of the first truly useful decentralized finance app, or just a random Wednesday in 2027? I don't know, but I sure want to own some Polkadot when it happens.

Why rival blockchains might be the best thing for Polkadot

As for the rise of alternative blockchain solutions for the Web3 era, I welcome them with open arms. Remember how Netflix (NASDAQ: NFLX) invited the whole entertainment industry to come up with better media-streaming services in 2015? Pretty much every media company took up the challenge, forcing Netflix to keep up its industry-leading innovation.

Ten years later, Netflix is still the digital entertainment name to beat. A $1,000 Netflix investment in July 2015 would be worth about $11,850 today. A sudden influx of serious rivals made the whole business idea look more legitimate, and digital streaming is the leading video delivery system of 2025. Inviting plenty of competition was a good idea.

I can't guarantee that something similar will happen in the field of Web3 technology. History doesn't repeat itself, but it echoes and rhymes. Polkadot may be on to something good here.

Yes, Polkadot is a fairly speculative idea. It's also an extremely promising one. All things considered, I wouldn't recommend betting the family farm or taking out a third mortgage to finance your Polkadot-buying habits. Setting up a small position at these low prices should be enough.

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Anders Bylund has positions in Netflix, Polkadot, and Solana. The Motley Fool has positions in and recommends Avalanche, Netflix, and Solana. The Motley Fool has a disclosure policy.