Polkadot Price Rises by 20%. Is a Price Correction Imminent?

The price of Polkadot (DOT) has seen a significant increase recently, while the upward trend of other cryptocurrencies has slowed down. In the last 24 hours, the DOT price increased by another 6.7%.

This brings the price increase over the last 7 days to more than 20%. This is an impressive result considering the fact that Bitcoin’s price has remained at minus 0.67% over the same period.

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Why is the DOT price increasing so much?

The price of Polkadot has performed well in 2023. It has risen over 62% from its low in 2022. This rally has occurred amid challenges in the Polkadot ecosystem. Most parachains, including Moonbeam and MoonRiver, continue to struggle to gain market share.

Enjin – a non-fungible token (NFTs)-focused project in the Polkadot ecosystem – also struggled as trading volumes plummeted. On a positive note, Enjin’s Efinity platform was approved by the Japanese regulator. As it remains an important market for the NFT sector, it could lead to an increase in Enjin NFT purchases and sales.

Another positive aspect is that Polkadot has the second-largest developer activity in the industry. Analysts expect this activity to increase further with the upcoming launches of OpenGov and Parathreads.

In most cases, a jump in Polkadot’s price would be due to its close correlation with Bitcoin. According to IntoTheBlock, Polkadot and Bitcoin have a very high correlation coefficient, close to 1 – so the two cryptocurrencies mostly move in sync.

It is therefore important to note that the recent rally seems to have nothing to do with the BTC price, as it barely changed during the same period.

There are two main possible reasons for the price increase

First, there is the view that cryptocurrencies, just like high-growth tech companies, were extremely oversold in 2022 when the Federal Reserve raised interest rates. Most coins fell over 50% over the last year, while stocks of well-known companies like Tesla plunged over 70%. Most of the time, investors tend to buy oversold assets.

Secondly, Polkadot is rising on the growing expectation that the Federal Reserve will turn its monetary policy around in the face of falling inflation. The latest data showed that inflation fell from 7.1% in November to 6.5% in December.

However, the Fed has insisted that it will continue to raise interest rates, especially in light of strong labor market numbers. Data released Friday showed the unemployment rate fell to 3.4% as the economy added more than 500,000 jobs.

Polkadot price forecast

On the chart, it can be seen that the DOT price has been in an uptrend for the last few weeks. It has formed an ascending channel, which is shown in red. The price is now in the middle of this channel. Moreover, Polkadot seems to be forming a double top formation and a gravestone doji candle.

In addition, the DOT price remains slightly above the lines of the moving averages of the last 25 and 50 periods. Therefore, I suspect that a price correction will occur soon and Polkadot will retest the bottom of the channel at around $6.50.

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(Featured image by Traxer via Unsplash)

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