Ethereum has achieved many milestones and played an essential role in expanding blockchain technology. It has not always been a smooth ride. Ethereum has limitations, such as scalability and interoperability, resulting, at times, in severe congestion and sky-high transaction costs.
This is where Polygon or Matic, as it was known when it launched in 2017, comes in. Polygon is a Layer 2 solution built on top of the Ethereum blockchain and designed to tackle blockchain scalability and useability issues, which is just what Ethereum needs. The native utility token of the Polygon network is known as MATIC. The current circulating supply of MATIC is 8.68 billion, with a maximum supply of 10 billion.
Trading can be frustrating and stressful. Anything a trader can do to achieve an edge over the market will help reduce both. Luckily, blockchains offer a wealth of data that can be harvested and used to create trading signals.
What makes this even easier is that there are on-chain analytics platforms that do the work for you. They compile the data into charts and dashboards to help traders visualize blockchain data and track the movements of crypto. Although not perfect, using this data can improve a trader's chances for success.
Numerous on-chain analytical platforms compile and categorize blockchain data. This article will be using data from the IntoTheBlock platform.
Polygon (MATIC) On-Chain Trading Signals Analysis
Holders Making Money at Current Prices
This metric classifies and groups wallet addresses based on if they are making money, breaking even or losing money at current prices. This Polygon trading signal identifies critical areas where holders' positions are concentrated, creating buying (support) and selling (resistance) activity. Knowing the location of support and resistance areas is vital information for traders.
Concentration by Large Holders
Here wallet address data is placed into three categories, whales, investors and retail. This data will tell you how centralized/decentralized a crypto asset is. Preferably, retail investors should hold most of a crypto asset because this signifies decentralization and adoption.
For example, if whale addresses hold most of a crypto asset, that is a potential risk. The reason for this risk is that it indicates centralization and the possibility that a few holders could move the market. They could sell and potentially crash the price if they decided to.
Price Correlation With Bitcoin
This metric measures the price correlation between a crypto asset's price and Bitcoin's price. The correlation is rated on a scale from 1 to -1, with 0 representing no correlation, 1 indicating a high degree of correlation and -1 indicating an inverse correlation.
This data can help traders diversify their portfolios and manage risk. It can help them build a portfolio that could still perform well even when Bitcoin isn’t performing well. This action would be done by including crypto assets with low and inverse correlations to Bitcoin.
Holder’s Composition by Time Held
This metric categorizes wallet addresses according to the time they have held a specific crypto asset. The data is divided into three categories.
- Holders - addresses that have held the asset for 1 year or more
- Cruisers - addresses that have held the asset from 1 to 12 months
- Traders - addresses that have held the asset for less than 1 month
If a crypto asset has a majority of addresses categorized as holders, it could indicate that investors believe in the project's long-term viability.
Transactions Greater Than $100,000
This metric measures the aggregate dollar amount of transactions exceeding $100,000. Seeing large transactions volume in USD gives you an idea of the total amount transacted by whales and institutional investors. Spikes in large transactions point to higher activity by whales and institutional investors, which can cause increased volatility, something traders look for.
Transaction demographics, or as IntoTheBlock calls it, East vs. West, approximates the demographic distribution of market activity for a particular crypto asset. It is not one of the most useful trading signals for Polygon but it can help sometimes. The transaction data is categorized by time. The east category is between 10:01 p.m. to 10 a.m. UTC and the west category is between 10:01 a.m. to 10 p.m. UTC.
This metric helps traders understand at what times most of the transactions occur. This knowledge is essential because it allows traders to manage their trades better. For example, if most trading activity occurs when a trader is sleeping, they can set stop losses or take other precautions to protect their trades.
Exchange Inflows and Outflows
This is one of the most important trading signals for Polygon and other altcoins. It tracks exchange wallet addresses to measure crypto flowing into and out of exchanges. Identifying exchange inflow spikes will tip off traders that there could be an increase in selling pressure. Conversely, if outflows exceed inflows, that could indicate a reduction in selling pressure. Like all the other data, this data allows traders to manage their positions better.
Is Now a Good Time to Buy Polygon (MATIC)?
Looking at the price history of MATIC, it would seem the upside risk outweighs the downside risk. MATIC is down over 70% from the peak in December. This would appear to be a good time to buy, but no one really knows if MATIC has bottomed or has further to fall.
Also, looking at the MATIC dashboard on IntoTheBlock, the on-chain signals are leaning bearish and the exchange signals are neutral. Holders making money at the current price are only 18% and holders only make up 20% of all MATIC owners.
If someone were looking to establish a long-term position, dollar-cost averaging would be the safest strategy to use right now. Buying over a long period eliminates trying to time the market and can give you an excellent overall average cost.
How to Buy Polygon (MATIC)?
MATIC is available at many exchanges worldwide, so it should be available to purchase no matter where you live. Below is a list of some of the larger cryptocurrency exchanges that support MATIC.
- Binance and Binance.US
These exchanges are reputable, have user-friendly trading platforms and make opening an account easy. To open an account, follow the required online steps. Most exchanges will also want you to verify your identity, so they meet the requisite know your customer (KYC) standards. You will also need to link a bank account, or some exchanges also let you use a debit or credit card to make purchases.
You will also want to get a good software (hot storage) wallet and invest in a good hardware (cold storage) wallet. It is not a good idea to keep too large a quantity of crypto on an exchange.
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How Does Polygon (MATIC) Fit Into the Bigger Picture?
Polygon is a Layer 2 solution built on top of the Ethereum blockchain. Polygon aims to address the Ethereum blockchain's limitations, including slow transaction processing speeds and high fees.
Polygon also enables communication between Ethereum and other blockchains, helps deploy existing blockchain networks and develops custom blockchains. Polygon can also help existing blockchain networks become compatible with Ethereum.
One of Polygon’s competitors is Arbitrum, a Layer 2 solution on the Ethereum blockchain. Arbitrum was designed to improve the capabilities of Ethereum smart contracts, boosting both their speed and scalability. Arbitrum is considered one of the most Ethereum Virtual Machine (EVM)-compatible rollups, has robust developer tooling and cuts transaction fees to a fraction of what they are on Ethereum.
Comparing the two, Polygon can process up to 65,000 transactions per second while maintaining low fees. In comparison, Arbitrum allows for 40,000 transactions per second, with meager gas fees. As for adoption, Polygon has 19,000 decentralized applications (dApps) built on the Polygon blockchain, while Arbitrum has 228 active projects.
About a dozen other projects are also trying to do the same thing as Polygon and Arbitrum. It’s still too early to know which of these will come out on top or if they can all co-exist. The good news is that they are all working to improve blockchain technology.
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About Donald Hancock
Donald’s expertise lies in the technical analysis of both stocks and crypto.