The Polygon [POL] network saw a surge in onchain activity in the second week of January.
AMBCrypto reported that the record POL burn was due to “an all-time high for demand and single-day fees generated”.
The onchain metrics showed that short-term holders back then were in profit, and given the higher timeframe price trend of POL, this represented a threat from profit-taking pressure.
The $0.18-$0.20 area was highlighted as a potential supply zone. This has come to pass. At the time of writing, the Polygon token was trading at $0.1245, down 33.28% from the $0.1866 high it made on the 10th of January.
Decreased onchain activity reveals reduced POL demand
Source: Santiment
The daily Active Addresses metric saw a sharp spike in the second week of January, around the same time as POL’s price rally. Since then, the Active Address count has steadily declined.
Moreover, the Network Growth has also fallen over the past two weeks. The transaction count has also declined, coming back to December’s levels.
The developments of the past two weeks meant that the surge in onchain activity has not been sustainable. This could help explain the reduced demand for POL.
Holder behavior shows mixed signals
Source: Santiment
The Mean Coin Age and the 90-day Dormant Circulation moved dramatically during the POL rally earlier this month. This suggested short-term holders had taken profits during the bounce.
However, the 1-year Dormant Circulation hardly moved, showing long-term holder conviction remained steady. Since the 14th of January, the Mean Coin Age has begun to trend upward, once more signaling network-wide accumulation.
Capitulation from short-term holders was not seen either, as the 90-day Dormant Circulation remained quiet after the initial spike.
Traders and investors can keep an eye on the Dormant Circulation in the coming weeks to monitor the next wave of selling.
Overall, the slowing onchain activity was a concern. Another uptick in activity and demand for POL can drive the next rally. For now, traders and investors can keep an eye on the $0.12 support level.
Final Thoughts
- The early January Polygon price and onchain activity surge were not sustained in subsequent weeks.
- Long-dormant tokens woke up during the recent rally, a sign of holders selling the bounce.
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