“Buy the rumour, sell the fact” – is a common practice among traders that explains a price increase into the run-up of a positive event or news release and the subsequent decline in the price that occurs after the anticipated positive event has happened.
Over the past few months, there has been a lot of buzz around Polkadot and the release of its parachain auctions. A parachain auction is a bidding process in which new blockchain projects try to become part of the Polkadot network. This auction is nothing short of a historical event in the life of Polkadot. One that finally signifies the beginning of what we can only assume will be a rapidly growing ecosystem.
And yet, despite this game-changing event, many analysts have considered Polkadot’s (DOT) recent performance relatively underwhelming. In the prior three months, Polkadot (+54%) had actually outperformed both Ethereum (+30%) and Bitcoin (+18%).
Since the parachain auction, we have seen DOT sell off quite heavily as “buy the rumour, sell the fact” traders push down the price of DOT. It appears that investors bought into DOT prior to the launch of the parachain auction (buying the rumour) and sold DOT on the day the parachains launched (selling the fact). This is likely one of the primary drivers of DOT’s lacklustre performance in recent weeks.
The question is, have these investors just given you the ultimate Black Friday deal? A subdued DOT price, just as it becomes ready for developers to start building upon it?
Imagine walking into a room and not being able to speak the language of anyone else in the place – that is what life is like for most blockchains.
This language barrier makes it impossible for many blockchains to talk to each other. For example, Bitcoin, which exists as a functional store of value, and Ethereum, which functions as a platform for other crypto projects to be developed on, cannot speak to each other. Polkadot offers the opportunity for these two blockchains to speak to each other, and not only that, but it allows the best traits of each blockchain to be used in unison.
Polkadot has been designed with one purpose in mind; to unite an entire network of blockchains – from Bitcoin to Ethereum to all those other cryptocurrencies you’ve never heard of.
Without getting too far into the nitty-gritty of the technology behind Polkadot, this new approach to blockchain technology presents a vital opportunity from a technological and a financial standpoint.
To understand what Polkadot is and why it’s so promising, we need to start by outlining one of the largest problems in the blockchain and crypto space right now: blockchain interoperability. This is a fancy way of describing how blockchain networks communicate with one another.
Currently, different blockchains can’t really communicate with one another, which really puts the brakes on blockchain technology’s whole “rebuild the financial world from the ground up” narrative.
If you choose to develop on Cardano, you won’t be able to interact with the Ethereum blockchain, and thus, you lose the large ecosystem Ethereum has to offer.
This is where Polkadot steps in to save the day.
Polkadot enables different blockchains, which it calls ‘parachains’, to operate and communicate seamlessly together at scale (like how people can transact across different banks).
Polkadot enables developers to customise the specific features they want, giving them the flexibility to opt into those parts of the Polkadot network that suit their project and stay away from those parts that don’t. Furthermore, it enables their project to be able to operate across multiple blockchains, rather than limiting them to just the blockchain they have built their project on.
What is a Polkadot parachain?
The Polkadot ecosystem floodgates are officially open.
The cryptocurrency and blockchain industry has been eagerly awaiting the launch of Polkadot parachains. The Polkadot team has been working on this for nearly half a decade and the launch offers a fantastic opportunity not only for blockchain projects but also for investors and individuals curious about the cryptocurrency space.
You see, Polkadot’s parachains are custom, project-specific, layer-1 blockchains that are integrated within the Polkadot ecosystem and feed into Polkadot’s main chain (called the relay chain).
By having these parachains integrated into the Polkadot system, these parachains have access to new features, such as:
- Scalability: Meaning transactions are fast, and users don’t have to worry about slow transactions and expensive fees
- Interoperability: Meaning the parachains can talk to each other.
Polkadot’s interoperability is the key reason that Polkadot is such an interesting project to watch. This clever working technology sets Polkadot apart from the rest of the industry and promises a massive opportunity for disruption.
By holding Polkadot’s native cryptocurrency, DOT, you are not only getting exposure to Polkadot itself, but you are also gaining exposure to all the new blockchain projects (parachains) being built on it.
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There’s still time to be an early investor in the blockchain technologies that are redefining the world as we know it. This is your chance to remember Black Friday 2021 as the year you changed your financial future for the better.
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