My Top Crypto Idea for 2022: Polygon

Previewing what may be in store for Polygon (CRYPTO: MATIC) in 2022, Fool.com contributor Chris MacDonald and The Motley Fool’s Eric Bleeker discuss the outlook for this top cryptocurrency. This discussion took place on Jan. 5 during “The Crypto Show” on Backstage Pass.

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Eric Bleeker: We’ve got Polygon and it trades for $2.39, a market cap of $17.1 billion. I don’t know offhand, but I would guess that makes it probably in the teens in terms of largest cryptocurrency today.

Chris, why is this a top idea for 2022?

Chris MacDonald: Yeah, I think Polygon is 14th right now in terms of market capitalization.

We’ve been talking a lot about the NFT space. This one I figured would be a good one to talk about for our segment today.

But as layer 2 network, what Polygon is, is essentially a side chain for Ethereum. There are a lot of different scaling solutions for Ethereum (CRYPTO: ETH). Investors may or may not know necessarily the nuts and bolts of what’s going on with Ethereum right now. But anyone who’s done transactions on the Ethereum will know that the network being so popular is actually quite slow relative to a lot of the other blockchains that are out there, the Solanas (CRYPTO: SOL) and what have you of the world.

What Polygon does is it’s a side chain. It basically works alongside Ethereum and it can process Ethereum-based transactions, but it allows for scalability. It can do those transactions faster because they are being processed on a different blockchain. That speed and cost advantage is pretty key, especially for NFTs.

When you’re thinking about the retail segment of the NFT market being such a big segment in terms of transaction volume, the actual dollar amounts of a lot of those transactions are relatively small. On a layer 2 network like Polygon, an investor can go and buy an NFT for fraction of a penny, would be the fee. Whereas on Ethereum, you might pay hundreds of dollars at peak hours to make that transfer and that just might not be worth it.

Polygon is picking up speed and I had a metric pulled up that on the polygon network — the volumes for NFT on OpenSea specifically have absolutely spiked. As of June, they were 750,000 roughly, and as of December, that number spiked to 7.6 million. For Polygon, at least on OpenSea, they’ve 10Xed their NFT volume in the matter of half a year. That’s pretty incredible.

The growth and the bull thesis with this platform is that Ethereum-based transactions just right now aren’t as feasible as investors would like to see and Polygon helps speed up and lower the cost of those transactions. For NFT, Metaverse games, DeFi applications, there’s a lot to like about Polygon.

Then on the bear case, many investors might know that Ethereum is undergoing an update to Ethereum 2.0 which should be completed at some point this year. Some experts think mid-2022 but I guess we’ll see. The threat with that is Polygon’s growth is because it’s a proof-of-stake platform that works as a side chain and takes advantage of Ethereum’s cost and relatively slower speeds. If the Ethereum update goes well and Ethereum’s costs come way down and speed rises the need for something like Polygon might be reduced. That could, in theory, hurt the investment thesis with Polygon right now.

But looking at the growth just over the past six months for Polygon and those metrics, it’s gained some pretty significant market share. There’s a reason that it’s the 14th biggest cryptocurrency. This is one that I’ve got my eye on for 2022 and it’ll be an interesting one to see where it finishes the year at.

Chris MacDonald owns Ethereum and Solana. Eric Bleeker owns Ethereum. The Motley Fool owns and recommends Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.