Chainlink

Among the leading megacap cryptocurrencies in the market, Chainlink (LINK 8.05%) has been one of the more volatile digital assets of late. The project’s native LINK token has surged 14.4% since 4 p.m. ET yesterday, as of 2:30 p.m. Monday. This move is notable in the crypto sector during this trading session, and indicates a significant amount of interest in Chainlink from investors of all types.

Let’s dive into the investment case around Chainlink, and specifically what’s driving today’s move in the top token.

Catalysts galore

Image source: Getty Images.

Chanlink is a crypto project I keep pretty close tabs on. But from time to time, it’s possible to overlook certain catalysts for a given project. And Chainlink has seen a flurry of updates and integrations the market has clearly caught on to faster than me.

One of the more notable catalysts comes from the institutional investing world, with Nasdaq-listed real estate company Caliber Corporation announcing this past week it was buying another $2 million worth of LINK tokens. This brings the company’s holdings to roughly $10 million, signaling that there are other tokens in the market companies are interested in buying outside of Bitcoin.

Also last week came a joint announcement from S&P Global Ratings and Chainlink around a partnership to allow financial institutions to have more visibility into the stability and holdings supporting various stablecoins. Chainlink’s core oracle capabilities, in allowing off-chain data to be ported onto the blockchain, has allowed for these sorts of partnerships. And right now, the market appears to be banking on additional partnerships coming down the line.

But perhaps the most notable recent news driving Chainlink higher today comes via so-called whales, or large crypto investors, who have continued to add to their holdings in LINK. In other words, it’s not just companies like Caliber Corporation stepping up to the plate. Big-time crypto investors are buying heavily, with recent reports indicating that $116 million of Chainlink’s native token has been purchased since its recent dip.

Bottom line

Overall, Chainlink’s status as a core oracle network sets it apart from the competition and provides a solid long-term investing thesis. However, these recent catalysts do suggest that the dips we’ve seen in Chainlink may continue to be bought.

Currently, Chainlink remains among the top tokens on my watch list, and I’d encourage investors to keep an eye on this token before its next catalyst materializes.

Many top cryptocurrencies have performed well in the last year, including Chainlink (LINK 2.47%). As I write this (Oct. 1), the leading oracle cryptocurrency is up by about 95% year on year. Oracles are the backbone to many blockchain ecosystems because they provide the data that keeps everything running.

Chainlink describes itself as “the missing link between blockchains and the real world.” Not only can Chainlink act as a bridge between blockchain systems and existing networks, it also helps individual blockchains to talk to each other.

It secures over $100 billion in funds on-chain, according to DefiLlama, and claims to have facilitated over $25 trillion in transactions. Put simply, if blockchain continues to gain mainstream adoption, oracle cryptos like Chainlink will play a key role.

Image source: Getty Images.

Why Chainlink still has room to grow

The passing of the GENIUS Act in the U.S. removed a major obstacle that had been stopping blockchain projects, particularly stablecoins, from going mainstream. Now, major financial institutions, banks, payment providers, and even stock exchanges are looking at ways to integrate blockchain technology into their operations.

That integration goes beyond stablecoins to include things like decentralized applications, tokenized real-world assets, and central bank digital currencies (CBDCs). It isn’t clear what shape it will take, but much of it will rely on smart contracts — tiny pieces of blockchain-based, self-executing code. And smart contracts rely on the type of information that Chainlink provides.

It’s all very well having blockchain code that automatically triggers in certain situations without the need for middlemen. But if the information feeding the code is faulty, the whole system breaks down. Those smart contracts need accurate data, whether that’s on chain or in the real world.

Let’s say you have a decentralized sports betting application. The smart contracts can only pay out if they know which team won and what happened in the game. That comes from an oracle. Similarly, accurate data about, say currency or stock prices, is crucial for stablecoins or tokenized stocks to function.

Chainlink is at the forefront of what could be a new frontier. It recently announced the launch of DataLink, which allows institutions to easily publish data on blockchains. It is partnering with the German stock exchange to make real-time information available on over 40 blockchains. It’s working with the U.S. government to bring macroeconomic data online. And it has been collaborating with Swift, the international payment messaging system, on ways to connect its network to the blockchain.

What might hold Chainlink back

With all those positive drivers, you might wonder why Chainlink hasn’t been able to reclaim its all-time high (ATH) from May 2021. It’s been trading between around $20 and $25 for the past month, but in the last crypto bull run, it topped $50 per coin. That’s partly because we haven’t seen an altcoin frenzy this year — much of the growth has been dominated by Bitcoin and Ethereum.

The bigger reason is Chainlink’s tokenomics. The project has a capped supply of 1 billion tokens, of which almost 680 million tokens are in circulation today. A further 7% of the total supply gets released each year.

Its market cap is around $15 billion today, compared to just over $20 billion at its ATH. This shows that Chainlink has recovered a lot more of its value than the price alone might suggest. It also represents a risk: Until the number of tokens in circulation stops increasing, demand has to go up as new tokens get released, to prevent diluting the coin price. Yep, inflation is a concern in cryptocurrencies, too. 

More broadly, there’s a risk that a stablecoin boom doesn’t materialize in the way the market expects. We’ve seen people get excited about the potential to upend traditional financial systems before, particularly around payments and global money transfers. But it takes time to change systems that have taken a century or more to build. And a high-profile stablecoin de-pegging, security incident, or technical glitch could send institutions back to the drawing board.

Chainlink will be part of the solution

While it isn’t the only oracle blockchain out there, Chainlink is currently streaks ahead of the competition. DefiLllama says it has over 60% of the total value secured. That said, its biggest competitor, Pyth (PYTH 6.06%), is growing and will also partner with the U.S. government. Even so, if the stablecoin or tokenized asset markets are about to boom, there’s ample room for several oracles to flourish.

It’s important to make sure any cryptocurrency investment only makes up a small portion of your wider portfolio. But if you’re looking for a picks-and-shovels approach to the stablecoin boom, Chainlink is worth a closer look. In addition to its growing utility, there may soon be the launch of a couple of spot Chainlink exchange-traded funds (ETFs). That makes it easier to invest in Chainlink and potentially also boost its price.