DOT drops to a new low; traders should read this before buying the dip

• DOT was oversold after a recent bearish stint pushed it to a three-year low.
• Low investor excitement suggested recovery may not be very easy. 

Polkadot’s native cryptocurrency DOT might have most of its investors rethinking their decision after its latest performance. It continues to extend its downside and has achieved a new local low.

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To recap, DOT delivered an overall bearish performance since February. Its press time price represented a 53% dip from its peak price in 2023. It exchanged hands at $3.67 at the time of writing. More importantly, the extended crash this week allowed the altcoin to achieve a new three-year low.

Source: TradingView

A key point to note here is that DOT was oversold. Hence, the likelihood that it might experience demand resurgence. However, traders need to know something before committing to another episode of buying the dip.

Liquidity may not be so forthcoming despite current conditions

There was also a significant chance that DOT may struggle to bounce back. This was because low liquidity has been starving the markets. It might also take a while for strong liquidity to make a comeback in the altcoin segment.

At press time, there was some uncertainty regarding DOT’s ability to bounce back strong. A dip of its latest magnitude is often accompanied by a strong bounce back. However, the cryptocurrency’s press time sentiment suggested that investors weren’t so confident about recovery. The Weighted Sentiment metric’s latest data demonstrated low interest in DOT.

Source: Santiment

DOT’s On-chain Volume also indicated a lack of excitement as Volume was still within the normal two-week range. An assessment of the derivatives market revealed that Funding Rates were still in the negative. A sign that the bulls might struggle to facilitate a sharp recovery.

Source: Santiment

These findings may suggest that DOT could continue to extend its bearish price action for the next few weeks. Alternatively, sell pressure may dwindle followed by sideways price action. While these are theoretical scenarios, traders should note that Polkadot just kicked off its latest parachain auctions.

If you are hoping that this could trigger enough bullish demand, then you might be in for some disappointment. Parachains may encourage the purchase of DOT by those intending to support the auctions. However, the level of demand is usually too low to have a noteworthy impact on DOT’s price.

Read about DOT’s price prediction for 2024

Parachains may not influence price but they are an important part of Polkadot’s operations. They highlight the fact that new projects will soon be onboarded, thus potentially contributing to the network’s expansion.