Polygon (CCC:MATIC-USD) has likely hit bottom and is now rebounding, mainly due to its huge popularity. In fact, unlike other cryptos, MATIC crypto rose at the end of 2021 when others were tumbling. Now it seems to have hit bottom and is likely to keep recovering.
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Here is what happened. Polygon reached a year-end peak price of $2.8716 right after Christmas on December 26, 2021. This was right when other cryptos were tanking. But then, suddenly, MATIC crypto fell out of bed. It’s almost as if the gravitational forces from other cryptos forced Polygon’s price lower.
Then, near the end of January, it hit bottom at $1.33 on Jan. 24. In the space of less than one month, MATIC crypto had tanked by over $1.54 per token. That represents a decline of almost 54%.
As of Feb. 1, Polygon is up to $1.64 per token. This means it is still down from the year-end price of $2.6209. But this is not likely to last.
Why Polygon Is Likely to Move Higher
For one, it really doesn’t seem likely that the underlying value of Polygon has really dropped so suddenly and so much in less than one month. This is because MATIC crypto is so very popular, both with developers and with app users.
I wrote about that popularity in the last two articles, including my article, “Polygon’s Value Grows As Its Apps Grow in Usefulness and Popularity.” In the article, I described its popularity with developers who are now using Polygon’s blockchain platform to write “Web3” apps.
Web3 refers to a newer version of the internet, a decentralized version, which does not depend on huge server farms to keep all the records. Blockchains like Polygon are vying to host the next iteration of the internet over the long run — a decentralized, non-server farm, non-Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) or non-Meta-Platforms (NASDAQ:FB) version.
Moreover, Polygon has also become a favorite of developers for non-fungible tokens (NFTs) and other digital collectibles. On top of that, Polygon was designed as an “Ethereum killer, with faster transaction times and lower fees.
Burning Tokens
Now, according to The Daily Hodl, there is one more good reason why Polygon could move higher. Recently Polygon started “burning” MATIC crypto tokens by implementing a recent Ethereum (CCC:ETH-USD) blockchain update.
The term burning here refers to eliminating MATIC crypto tokens from Polygon’s total MATIC token supply. This happened when Ethereum Improvement Proposal 1559 (EIP-1559) went live on the Polygon mainnet last week.
I wrote about the EIP-1559 change in the past and how it’s designed to reduce the total supply of Ethereum tokens. The bottom line is that it helps increase the long-term value of ETH tokens by cutting the supply vs. the demand for ETH tokens.
This took place earlier in 2021 for Ethereum but is now just getting implemented on Polygon. As a result, it could end up having the same long-term value on Polygon.
The reason is that Polygon is built upon the Ethereum blockchain network as a secondary solution. Its basic software uses Ethereum code, so at some point, the EIP-1559 token burning would affect its own blockchain. This is, therefore, another long-term bullish event for Polygon and MATIC crypto tokens.
What to Do With MATIC Crypto
Investors should cheer this recent development. It is effectively close to the same thing as a share buyback. However, it’s not exactly the same thing. It means that the rate of increase in Polygon tokens will be limited as more MATIC crypto is taken out of the total supply.
Investors may want to buy into Polygon at this depressed price. As I have shown, it is well off of its highs, and given its popularity and now its token burning there are good reasons why it could recover.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.