Since notching an all-time high of $2.87 in December 2021, Polygon's (MATIC -2.43%) price was pummeled in 2022, as with many other cryptocurrencies. At one point in June, it had lost 88% of its value.
With the $3 mark likely in reach should a crypto bull market return, the next psychological landmark investors might be looking for is a value of $5.
For its price to reach $5, Polygon would need to increase by around 230%. So the question is: Can Polygon nearly double its previous all-time high and hit $5?
As it turns out, there might be a solid case for Polygon to reach this level based on a combination of recent developments and blockchain fundamentals.
A year to remember
Before getting into the fundamentals, we need to start with the impressive year that Polygon had in 2022. You might be thinking, "What about 2022 could be impressive for Polygon if its price was down about 70%?"
While its price suffered last year, Polygon was able to accomplish a considerable amount in the form of new partnerships with some of the world's most recognizable brands.
As blockchain technology develops and companies look to integrate it into their business models, Polygon has risen to the front as one of the most popular blockchains to facilitate this transition because of its blazing speeds, cheap fees, and compatibility with Ethereum (CRYPTO: ETH) -- one of the world's most popular blockchains.
In just 2022 alone, Coca-Cola, Disney, Meta Platforms, JPMorgan, and Starbucks all entered varying forms of partnerships with Polygon as they began to explore new blockchain-based business models.
Even though Polygon's price didn't increase last year, these new alliances helped the crypto remain resilient and were likely part of the reason it jumped into the top 10 most-valuable cryptocurrencies, where it remains today.
Increasing demand with a limited supply
While these partnerships will likely continue to materialize and bring more demand for Polygon, there is even more reason to believe it can reach the $5 mark based on a look at the cryptocurrency's fundamentals.
As with any asset, crypto prices are a reflection of supply and demand. As previously discussed, demand for Polygon is increasing, but what about its supply?
Polygon has a total supply limit of 10 billion of its MATIC coins. There are currently around 9 billion in circulation, and the remaining 10% will enter the supply at a dwindling rate until 2026.
Last year, Polygon's developers introduced a proposal that would take a portion of fees on the network and permanently remove MATIC coins from circulation, a term referred to as burning. This not only reduces the rate at which new coins enter circulation, but can also reduce the total number of coins.
The process itself is a little complicated, but essentially each transaction on the Polygon network includes a base fee that is dedicated solely for burning. Therefore, the more transactions that occur, the more fees will be burned and add further deflationary pressure.
This is great news for investors because deflationary assets typically increase in value with time as they become more scarce. And current trends insinuate demand for Polygon could outpace its supply.
The case for $5
Trends in daily transactions and the number of unique addresses on the blockchain show that Polygon still possesses strong fundamentals, even in a bear market.
Despite the crypto winter, daily transactions have remained resilient and steady -- a sign that Polygon's blockchain is still in demand. The number of unique addresses currently sits at an all-time high of more than 219 million and experienced significant growth in the second half of 2022, defying price decreases.
If Polygon was able to reach nearly $3 without the previously mentioned partnerships and new deflationary characteristics, these added factors plus increased demand could provide the necessary fuel to send it to $5.
If that proves to be the case, investors shouldn't expect it to happen overnight or even this year. It's more likely to be a winding path with some bumps along the way. Consistent investments in Polygon will help gain exposure to one of the leading Layer 2 blockchains and could help set up crypto investor portfolios for long-term success.
