A Wall Street (Crypto) Analyst’s Take on ChainLink: Crypto Long & Short

If the LINK token were a stock, here’s what an analyst might say.

AccessTimeIconJul 26, 2023 at 4:00 p.m. UTC
Updated Jul 26, 2023 at 5:43 p.m. UTC
AccessTimeIconJul 26, 2023 at 4:00 p.m. UTCUpdated Jul 26, 2023 at 5:43 p.m. UTC
AccessTimeIconJul 26, 2023 at 4:00 p.m. UTCUpdated Jul 26, 2023 at 5:43 p.m. UTC

Old habits do indeed die hard, it seems. I used to work as an equity analyst, conducting research and initiating coverage of different companies within the small-cap, oil-and-gas industry.

The process was relatively straightforward:

  1. select a firm to cover
  2. research the firm
  3. build a financial model and investment thesis
  4. publish a report for the public

The fifth step may or may not have been “hope for an investment banking relationship shortly thereafter,” but far be it from me to be cynical.

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At any rate, as part of our ever-expanding efforts to provide value at CoinDesk, I’m resorting to past practices and expanding my crypto coverage universe. What follows is my first attempt to write an equity analyst–style report on a digital asset. Given the often-opaque nature of this space, I think it’s necessary, to a certain extent. Honestly, outside of bitcoin (BTC) and ether (ETH), the general public may have trouble discerning the use case for one versus another.

Keep in mind that this is not financial advice, and, as such, I will refrain from assigning price targets for tokens. It’s essentially an initiation and declaration of asset coverage, using a combination of fundamental, technical and on-chain analysis.

Over time, and as coverage continues, the goal is to provide periodic updates when something pertinent or impactful to the asset occurs.

The first asset, ChainLink (LINK), is a member of the CoinDesk Indices Computing sector and recently appeared on a moving-average screen whereby its 10-period exponential moving average crossed above its 100-day moving average.

ChainLink (LINK/USD)

Coverage Date: July 26, 2023

Price: $7.53

Market Cap: $7.5 Billion

Circulating Supply: 538 Million LINK

Max Supply: 1 Billion LINK

Comparable TradFi Market Caps: BJ’s Wholesale Club (BJ), $8.61 Billion; Southwestern Energy (SWN), $6.9 Billion

Summary

ChainLink is a “decentralized oracle network” (DON) that seems to serve as a bridge between on-chain and off-chain data, essentially linking smart contract platforms with external data sources. Examples of transmitted data often include – but are not limited to – price feeds, along with payment confirmations.

LINK tries to solve the “oracle problem,” which it defines as a blockchain’s “inability to natively pull data from or push data to an external off-chain system.”

ChainLink’s network consists of multiple independent, decentralized oracles that facilitate the retrieval and validation of data between on-chain and off-chain sources. The desired result, and ultimately its value proposition, is that the ChainLink network will help developers build better and more efficient blockchain applications that users will benefit from. Security and reliability of data appear to be core tenets of ChainLink.

(ChainLink)
(ChainLink)

Its native token, LINK, serves as the payment mechanism on the network itself. ChainLink users pay LINK to access oracle services. Holders of LINK are also able to stake the asset itself for additional returns on various decentralized finance (DeFi) platforms.

Bullish Considerations

  • On a technical basis, LINK prices have been in an uptrend since June 20, following a 40% decline between April 19 and June 19.
  • Prices have appreciated approximately 5.7% since its 10-period moving average crossed above its 100-day moving average on July 13. In prior times such a crossover has occurred, LINK has gained 16.4% on average over the next 30 days.
  • Its current RSI of 59 has, in the past, preceded 30-day increases of 11.6% historically.
  • ChainLink has seven primary areas of focus:

The result of ChainLink’s efforts has led to an expanding network of oracles, meant to increase the reliability of data transfer.

One timely feature that ChainLink boasts is its “Proof-of-Reserves” (PoR) offering, meant to bring transparency and verification of third-party reserves. (In other words, proving that firms really have the assets they claim to have.) Paxos, TrueUSD and BitGo are among ChainLink’s PoR customers.

(ChainLink)
(ChainLink)

Bearish Concerns

  • Proof-of-Reserves may not be all that it’s cracked up to be. As reported by CoinDesk’s Sam Kessler, ChainLink’s PoR offering relies heavily on self-attestation. That means projects using the PoR service provide the reserves data. It’s not difficult to see where the potential for conflicts of interest may arise.
  • To ChainLink’s credit, they are forthright about this on their website. Additionally, they require that attestation methods be publicly disclosed.
  • The general public may miss this fact, however, which could cause reputational concerns for ChainLink if the attestations are faulty, even if ChainLink isn’t to blame.
  • Technically, LINK has a long way to go as its price remains a great deal away from its all-time high of $52.
  • Despite the recent crossovers and current RSI, prices have retraced over the most recent three days, indicating short-term profit taking. Sans a new catalyst, there may be a dearth of new buyers entering the market for LINK.
  • Finally, LINK’s most-recent breach of its upper Bollinger Band indicates that prices could retrace as well.

A strategy that some traders may consider is to monitor whether LINK’s price declines toward its 20-day average of $6.92 before increasing and/or decreasing their holdings.

All told, this is the first of a number of assets that we plan to expand coverage on. As we do so, communication with the wider ChainLink community is valued as well, as we attempt to provide our readership with insights about the digital-asset landscape.

Takeaways

From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading:

  • XXX: Look, nobody can reasonably look at dogecoin (DOGE) and say, “Yeah, that’s how money normally works.” And for some people, that’s the good news. They want this – a currency (and affiliated sports car) emblazoned with a dog’s face. For everyone else, even people amped up about crypto’s future, the appeal of a meme coin like DOGE is tiny, at best. And, yet, you can make a case that the future of DOGE is the future of crypto as a whole. CoinDesk’s Helene Braun kinda makes that argument here, noting that Elon Musk overhauling Twitter – turning it into an everything app called X – could be good news for crypto. Musk loves DOGE and you’d have to be asleep to not notice he likes doing outrageous things. Making DOGE and other cryptocurrencies an integral part of his planned payments platform feels like a natural move for him. And maybe that drives crypto toward the elusive goal of mainstream adoption.
  • FED UP: Moving money from point A to point B in the U.S. is bizarrely slow compared with how it works elsewhere. Americans still sometimes write paper checks! (Crypto could improve that, but much of Washington seems opposed to embracing crypto, so let’s ignore that for now.) The Federal Reserve just (finally) opened its FedNow service that promises instant payments. Some crypto fans worry about this. They view it as a gateway to a digital dollar that could impede crypto’s growth in the U.S. Officially, the Fed downplays any link, publicly anyway. Guess we’ll see.
  • DEFI DEAD? Talk to people who build and think about market infrastructure (the geeks – like me – call it “market structure”), and they get real excited about DeFi. It’s a sandbox where they can, in theory, build a whole new way of doing markets and finance. (I wrote an article that addressed this in my prior life at Bloomberg.) With the caveat that this bill likely is going nowhere fast, here’s a story about a new U.S. Senate bill that seeks to regulate DeFi like it was a bank. That doesn’t have to be a disaster for DeFi, but a clampdown could threaten the decentralized ethos of decentralized finance. Remember, the whole point of DeFi is you write some code that lets people do finance-y stuff in a relatively lightweight manner. But imagine how bogged down that gets if stringent regulations are dumped on top of it. Undermines the appeal, doesn’t it? Separately, though maybe relatedly, DeFi volumes are at seven-month lows.

Edited by Nick Baker.


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Glenn Williams

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX