Polkadot outperformed the rest of the market during this latest bearish weather. With start of 2021, Polkadot climbs the leaderboard in both market capitalization and terms of broader institutional and retail interest. Launched in May 2020, Polkadot (DOT) has quickly established itself as one of the most popular next-generation blockchains.
PoS Protocols Attracting Interest of Institutional Investment. A recent report by digital asset management company CoinShares says institutional investors show increasing interest in Proof of Stake (PoS) coins.
The biggest winners in net inflow are Cardano (ADA) and Polkadot. According to CoinShares, Cardano and Polkadot have taken the lion’s share of the $27 million net inflow of altcoin space.
Cardano made a whopping $10 million, while Polkadot’s received $7 million in inflows, and its multi-asset capacity took $5.5 million.
The report, titled Digital Asset Fund Flows, also notes that overall digital asset investment products saw a net outflow of $97 million for the second week in a row. This represents 0.2% of the total volume of flows entering the crypto market.
CoinShares has linked the ongoing outflow of funds to the growing regulatory uncertainty surrounding cryptocurrencies and Bitcoin environmental concerns. The report found that bitcoin holdings fell $111 million in assets under management (AUM).
Ethereum Dapps (decentralized applications) platform has also not been spared, although it has lost a much smaller amount. According to CoinShares estimates, the second most valuable cryptocurrency received an outflow of $12.5 million.
Environmental issues around BTC and ETH stimulate interest in DOT. There could be a transition from well-established digital assets like Bitcoin and Ethereum due to environmental concerns associated with crypto mining to more energy-efficient protocols.
This growing interest in PoS coins made Dubai-based crypto investment fund FD7 Ventures swap 75% of its bitcoin assets for ADA and DOT.
According to the Dubai Foundation, the plan is to accumulate DOT, given its growing importance in the Defi world. FD7 Ventures says projects like Bitcoin are already mature because of their high valuation.
Amid this adoption, digital investment firm Osprey Fund launched the Osprey Polkadot Trust to provide crypto exposure for high net worth investors looking to buy DOT in April 2021. Coinbase acts as the custodian of the Trust.
Bitcoin, the world’s oldest virtual currency, uses a proof of work (PoW) consensus mechanism just like Ethereum, and both are widely criticized for their energy absorption protocol.
According to Cambridge University metrics, Bitcoin uses more energy to verify transactions on the blockchain than most small European countries. Since then, this disturbing data has witnessed proponents and critics of crypto calling for a more efficient verification protocol.
Parachain Launch Could Lead Polkadot To Increase Market Share. PoS protocols are well suited to address this energy problem due to their lower power consumption and faster verification time. Polkadot is one such protocol, and its blockchain architecture is expected to allow multiple blockchains to transfer value without Trust.
Polkadot is also in the last phase of its development process after founder Dr. Gavin Wood announced the launch of its core parachains architecture on its Canary Kusama chain. According to Wood, the parachain shell will be deployed on the subsidiary Kusama blockchain network, and its success will herald the launch of parachains on Polkadot itself.
Crypto Hedge Funds Lifting DOT. Polkadot is also enjoying the growing adoption of crypto hedge funds. A recent report by the professional services company PwC states that the Polkadot is one of the most actively traded digital assets of crypto hedge funds, with 28% of all funds involved in trading the crypto asset. For comparison: 92% of all funds trade in Bitcoin, 67% in Ethereum, 34% in Litecoin, 30% in Chainlink, and 27% in Aave.
Investors’ positive attitude toward protocols such as Polkadot could lead to more buyers entering the market in the coming days.