Why Polygon, NEAR Protocol, and Optimism Nosedived This Week

The crypto market has been in flux over the past week, with most major cryptocurrencies losing altitude over the past seven days. Interestingly, three of the leading weekly decliners include Polygon (MATIC -1.65%), NEAR Protocol (NEAR -0.83%) and Optimism (OP 1.52%), which have declined 15.7%, 19%, and 22.25%, respectively, since Friday’s close.

Indeed, last week’s long-awaited approval of spot Bitcoin ETFs led to an initial sector-wide pop and then a sell-the-news decline, as investors dialed back their exposure to this sector. The sell-off we’ve seen materialize over the past week has been more pronounced around key alt coins, with some of this selling pressure among smaller-cap cryptos likely reflecting a broad portfolio repositioning for many investors toward megacap tokens like Bitcoin.

That said, these three tokens also have their own unique catalysts driving their underperformance this past week. Let’s dive into what investors are watching when it comes to these three top 30 cryptos right now.

Token-specific challenges in focus for investors

Outside of a simple-to-understand reversion rally from last week’s impressive surges, Polygon, NEAR Protocol, and Optimism have their own sets of challenges investors appear to be focusing on right now.

For Polygon and NEAR, a key integration between the two networks has failed to generate significant investor interest today. Earlier today, a number of reports highlighting a collaboration between the NEAR Foundation and Polygon Labs to integrate Near’s Data Availability with Polygon’s Chain Development Kit (CDK) should have stoked enthusiasm around the two projects.

This integration will allow developers looking to build zero-knowledge roll-ups (allowing for more efficient Ethereum scaling) to do so in a more reliable and efficient fashion. However, the total value locked (TVL) data coming out of both NEAR and Polygon suggest these ecosystems are seeing significant weekly declines, and it’s unclear whether developers will flock to these networks for reduced data availability costs, rather than build directly on the Ethereum network.

An upcoming hard fork of the Optimism network appears to be driving some investor jitters over the past week. Another Ethereum scaling solution, Optimism similarly provides roll-up scaling features that allow users to take advantage of faster and more cost-effect Ethereum transactions. In order to generate some improvements to the network and introduce new functionalities to remain competitive with other scaling solutions, this hard fork is expected to take place in short order. Transactions and withdrawals are expected to be suspended during this fork, so investors may have a short-term incentive to move away from the network for the time being.

Where are these alt coins headed from here?

To a certain degree, it’s unclear whether the recent declines in Polygon, NEAR Protocol, and Optimism should be taken at face value by investors. There is some transaction and TVL data that may suggest that there’s a fundamental basis for this decline. However, given the near-term nature of certain catalysts, such as Optimism’s hard fork, it could also be the case that these recent declines are overdone, at least to some extent.

Thus, it’s my view that crypto investors looking at scalability networks may want to pay close attention to these three tokens over the coming weeks. In my view, there’s simply not enough data to justify this week’s very bearish price action around these tokens.

Accordingly, I wouldn’t be surprised to see some sort of rally materialize, as longer-term investors step into projects with strong fundamental growth prospects. Right now, I’d put these three tokens in that category.