Why Polygon's MATIC Is Up Over 60% This Week

Polygon has managed to erase some of 2022's losses, but it still has a long way to go.

A number of top cryptos have posted gains this week, but none have skyrocketed as much as Polygon (MATIC). MATIC is up over 60% in the past seven days, according to CoinMarketCap data. In comparison, Bitcoin (BTC) has gained 9% and Ethereum (ETH) is up almost 30%.

Before we dive into the reasons behind Polygon's price jump, let's quickly recap what Polygon does. Polygon is a layer 2 solutions aggregator. Layer 2 cryptos sit on top of existing blockchains -- in Polygon's case, Ethereum -- to improve performance. As Ethereum continues to struggle with high fees and network congestion, Polygon has an important role to play.

Polygon's price jump

There are a few factors driving Polygon's price upwards. The biggest is the news that it's been selected as part of Disney's accelerator program. Another is that the market as a whole has posted gains, with the total crypto market cap reaching the $1 trillion mark for the first time since mid-June.

1. Disney's accelerator program

Polygon was one of six companies chosen by Disney to join its 2022 accelerator program. This year, Disney focused on augmented reality, non-fungible tokens (NFTs), and artificial intelligence. A press release says the program aims to accelerate the growth of innovative companies. Polygon is the only blockchain to be selected for the program.

2. Continued growth of ecosystem

Polygon is one of several blockchains that's attracted projects from the now defunct Terra network. Polygon Studios earmarked millions of dollars to help projects to re-establish themselves in its ecosystem. As a result, according to DeFi Llama, it now has 275 protocols on its network and the total cash deposited on the network is up over 10% in the past week.

Polygon has also made some big strides in terms of adoption. In May, Meta named Polygon as one of its NFT partners. Coca-Cola also used Polygon to launch a series of NFTs that celebrate Pride this month. Plus, Polygon is counting down on its social media feeds to a big announcement, due in a couple of days. Watch this space for more news.

What it means for investors

It's great to see solid crypto projects like Polygon post gains, and some analysts are tentatively talking about a recovery. But it's very early days. Inflation is still high and many economists warn of a potential recession. There's a good chance we'll see another significant interest rate hike when the Federal Reserve meets at the end of this month. We also don't know what impact increased regulation will have on the crypto industry.

Polygon is still down almost 70% from its all-time high, even after its recent price gains. Some investors may see this as a buying opportunity. But bear in mind that it is often risky to buy a cryptocurrency straight after a big rally. The risk is greater if you're buying just because the price has increased and you're hoping it will gain more in the short term. Sadly, the crypto market is often fueled by speculation, and dramatic crypto gains often precede a price drop, even in a bull market.

A better approach is to consider how well you think Polygon might perform in the coming five to 10 years. Look at its leadership, roadmap, and how it stacks up against the competition. Polygon's future is closely tied to that of Ethereum, which is in the process of a huge scaled upgrade. It's worth investigating how MATIC will fare once Ethereum completes its upgrade, which is due to happen next year.

Bottom line

Polygon has made a string of interesting announcements in recent weeks and months, and it looks like there will be more to come. However, don't buy any asset solely because its price has increased. Look at the fundamentals and how you think it will perform long term. Not only can cryptocurrencies be extremely volatile, it may not be easy to sustain short-term gains against wider economic and regulatory headwinds.