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The price of Polygon (POL) has experienced a significant decline, reaching its lowest point since April 21. This drop comes amid a broader sell-off in the cryptocurrency market. Currently trading at $0.1915, Polygon has fallen by 32% from its highest point in May and is down 74% from its 2024 peak. As a result, its market capitalization has decreased from $5.68 billion at its peak to $2 billion.

Rising Competition in the Layer-2 Sector

Polygon’s underperformance can largely be attributed to increasing competition in the layer-2 blockchain space. According to recent data, Polygon currently holds a Total Value Locked (TVL) of $1.17 billion and $2.3 billion in stablecoin supply. However, competitors like Base and Arbitrum are outperforming Polygon in these metrics.

Base, a layer-2 network launched in 2023 and backed by Coinbase, has amassed $5.14 billion in TVL and $4.16 billion in stablecoins. Similarly, Arbitrum holds over $3 billion in assets and $3.5 billion in stablecoins. Another emerging competitor, Unichain—launched by Uniswap in March—has already secured $1.12 billion in assets and $316 million in stablecoins.

Shutdown of Polygon zkEVM

Another factor contributing to Polygon’s decline is the recent shutdown of Polygon zkEVM, a project the company originally acquired as Hermes for $250 million. According to Polygon’s CEO, the decision was influenced by delayed technical execution, a lack of product-market fit, and overly ambitious goals. This strategic withdrawal has dampened investor confidence in the network.

Positive Network Activity Trends

Despite the challenges, Polygon has shown some encouraging signs in terms of network activity. Data from Nansen reveals that transaction volume on the network increased by 33% over the past 30 days, reaching 85.6 million transactions. Additionally, active addresses rose by 23% to 6.49 million during the same period.

When compared to Ethereum, Polygon’s performance in these metrics is impressive. Ethereum recorded a 5.5% increase in active addresses and a total of 34 million transactions. This growth in activity could indicate a potential for recovery in the future.

Technical Analysis of Polygon Price

From a technical perspective, the POL token has been in a prolonged downtrend. On the daily chart, the token peaked at $0.7672 in December but has since dropped below the 23.6% Fibonacci retracement level at $0.2950. Additionally, it has fallen below its 50-day moving average, signaling continued bearish momentum.

Indicators such as the MACD and Relative Strength Index (RSI) remain in decline, further supporting a negative outlook. If the bearish trend persists, the price is likely to drop to its year-to-date low of $0.1487, which is approximately 26% below the current price. However, a move above the 50% retracement level at $0.2195 could invalidate this bearish scenario and signal a potential reversal.

Key Takeaways for Investors

  • Polygon faces stiff competition from emerging layer-2 networks like Base, Arbitrum, and Unichain, which are gaining market share.
  • The shutdown of Polygon zkEVM has raised concerns about the network’s strategic direction and execution capabilities.
  • Despite price declines, Polygon’s network activity shows positive growth in transactions and active addresses, outperforming some metrics of Ethereum.
  • Technical indicators suggest the bearish trend may continue, but a key resistance level could offer potential for recovery.

Investors and traders should monitor developments in the layer-2 ecosystem and Polygon’s ongoing efforts to address competition and technical challenges. Staying informed about market trends and technical indicators will be crucial for making well-informed investment decisions in the evolving cryptocurrency market.

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