Polkadot (DOT) looks set to extend its ongoing price rally due to a classic bullish pattern forming on its daily chart.
DOT establishes a “cup and handle” pattern
In particular, DOT has been forming a “cup and handle” pattern since mid-June, confirmed by its price falling and recovering in a rounded U-shaped path (cup), followed by the development of a trading range on the right side (handle).
Cup and handle patterns are typically bullish continuation setups that form during an uptrend. Nevertheless, on rare occasions, they appear at the end of a downtrend, leading to a bullish price reversal. Consequently, the possibility of DOT continuing its price recovery seems high.
So, from a technical point of view, DOT is initially looking for a break above the cup resistance line and is grabbing near $8.50.
A decisive close above the resistance line, i.e. a breakout move accompanied by rising volume, could see DOT targeting upside around $12 in September, which would be a more than 50% rally with compared to the August price.
Polkadot Price Breakout Setup
Nevertheless, DOT’s path to $12 is at risk of exhaustion due to the presence of key technical resistance levels midway.
For example, Polkadot token could hit its 100-day simple moving average (100-day SMA; the purple wave) near $9.50, then pull back towards $8.50. This outlook is inspired by DOT’s price pullback on July 31 from the same wave resistance (highlighted with a circle sign below).
Meanwhile, a break below curved cup support could invalidate the bullish cup and handle setup entirely.
As a result, DOT could risk a prolonged price correction towards $6.25, which has served as support since June 13 against multiple declines. In other words, DOT could drop nearly 20% from the August 2 price at the latest in September.
Polkadot network metrics show stability
Along with the broader market, Polkadot experienced a sharp decline in its market capitalization mainly due to macroeconomic turmoil. As of August 2, the project’s net valuation was $7.92 billion, down from its all-time high of $55.51 billion in November 2021.
By comparison, Polkadot’s network metrics are healthier. For example, it had 145,000 monthly users in Q2/2022 versus 149,000 monthly users in Q1/2022, according to Messari’s quarterly DOT report in July.
Similarly, transfers from the Department of Transportation remained about the same quarter over quarter, averaging $293 million a month in the second quarter, compared to the 288 million of the first. Interestingly, the peak account and transfer readings in November 2021 were due to the inaugural parachain auctions.
Stable network activity underlines a steady organic demand for DOT tokens. However, it is still substantially below all-time highs, meaning that Polkadot would have to do more to attract new projects for its parachained network.
XCM Launch and Grant
Nicholas Garcia, a researcher at Messari, says that Polkadot could win more followers with its cross-consensus messaging (XCM) format. This recently released tool allows parachains to transmit messages to each other.
“The development of new functionalities and use cases will show the power of the network and can rekindle the interest and activity of users,” says Garcia, adding:
“Polkadot must continue to incorporate parachains and connect them with XCM.”
The Web3 Foundation, which oversees grants at Polkadot, approved 415 projects at the end of July, ranging from developer tools and wallets to smart contracts and user interface development. This measure guarantees a higher potential demand for TOD.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.