We All Link with Chainlink - Issue #5

Here’s our case for making Chainlink one of your top crypto investments. As this is only our 5th issue, we have profiled and price analyzed some of the top assets according to market capitalization and potential. As a subscriber, you can go and read all of our previous issues.

The Short of It

Chainlink is an exciting token to follow and trade as there is a constant flow of news that keeps traders coming back for more price action. What is Chainlink and what sort of investment potential does their LINK token have? But before that, let’s look at how the MadCapX portfolios are doing.


Portfolio

This portfolio section gives you an idea of what sort of return you can get when investing in cryptocurrencies. Over time, we will introduce other portfolios with different crypto assets.

  1. The BTC Hold is up 70% since October 1st. This will be a long hold, and it is best kept in cold wallet storage or a safe custody solution.

  2. The BTC/USD fund is up 35% since November 2nd. This will stay on an exchange. We will be keeping a close watch on the weekly charts to see trend changes for a trade out of BTC to USD. BTC has broken above $18900 USD this past week, which is only 5% away from an all-time-high (ATH). Each week it seems there is news of yet another institution or fund manager looking into BTC. There is no doubt that there is new money coming into Bitcoin daily. So we see no reason to sell our BTC position. We are interested in how the ATH will impact BTC in the short term and if we will see some pullback of a few thousand.

  3. FUND 3 started last week, November 16, 2020, with $1000 USD in value and invested into BTC, LTC, ETH and ADA. The BTC value is up 10%, and against USD, it is up 21%. We will hold these positions to see how well it does against our BTC-only portfolios. LTC was almost trading at yearly lows when bought, and now it is at the top of its bearish trendline; if LTC can breakout, we should see some good movement upwards. ETH bounced nicely off the bottom and continued to break the top of the trendline for a gain of 17% BTC and 28% USD. ADA has done the best this week for a gain of 31% BTC and 45% USD.


Profiling

In 2017, Sergey Nazarov, the tech entrepreneur, launched the Chainlink network. It is an oracle network that delivers/retrieves data to/from the real world to smart contracts on blockchains.  The Ethereum token, LINK, is used to incentivize and power the system.

To better understand the significance of this, we first need to know what oracles are why they are essential for programming on the blockchain. As many new cryptocurrencies have on-chain programming capabilities in the form of smart contracts, there needs to be a way for them to send and receive data from sources external to its own blockchain. For example, a smart contract may want to trigger a particular action when a package has been delivered or when a temperature sensor hits a certain level. Typically, this is something that smart contracts cannot deal with directly and require a third-party to give them that information. This is where “oracles” come in. An oracle gets data from the real world and packages it up, and allows blockchain code to access the data for a cost. The cost, in the case of Chainlink, is the token called LINK.  Oracles get paid in LINK to provide data, either coming in or out, for the smart contract. Each oracle has to provide some LINK upfront as collateral so that if it provides false or insufficient data, it gets penalized by losing LINK. This keeps the oracles honest and providing reliable data. Sometimes the same data will be requested from multiple oracles and aggregated to ensure that all are giving the exact and correct response.

Anybody can run their own Chainlink node if they have some DevOps experience and can dedicate some time to configuring and managing it. There are many online guides for setting one up (example on Medium.com). You can hook up any data providers to your node, and depending on how much need there is for your particular resource and how well you can provide it, you get paid LINK for every transaction. Beware, if you run an unresponsive or unreliable node, you can get penalized by losing LINK and users. Running a node is like running a business: you need to provide data that is in demand, advertise yourself and maintain reputation. You can browse existing nodes on https://market.link/ or examine how much they are earning on https://reputation.link/.

Chainlink currently has a little over 390 million tokens in circulation with a max supply of 1 billion.  LINK is an ERC-677 token, which is a derivative of ERC-20. Chainlink is blockchain agnostic. It is not limited to just Ethereum or any one specific blockchain.  Yes, it currently runs on the Ethereum mainnet but can be called from any blockchain that supports smart contracts. It may be added natively to other blockchains in the future if Ethereum continues to be costly to operate on because of scaling issues.

There has been a grassroots movement of people that hype Chainlink on the Internet.  They have taken on the name of “LINK marines” and have caused several spikes and drops in LINK price over the years by spreading FOMO or FUD as needed. Most recently, there has been a lot of euphoria around Chainlink due to the excitement around decentralized finance (DeFi). As with any cryptocurrency, realize the risks associated with hype and invest accordingly.


Trends

In this graph of the last 18 months, LINK has performed well against BTC. In July 2020, we see it break above the upward trendline and come back down to retest it. Beginning of August, it started a 2-week bullish momentum gaining 170%. In November, it has come all the way down to retest the previous trendline for a second time.

The next two charts compare LINK to when BTC is having robust upward momentum. The first chart has the red arrows down as LINK sells off quickly over 1-2 week periods. Each one of those red arrows corresponds to the exact same days as BTC is moving up erratically.

This BTC/USDT graph has green arrows. The third green arrow is rather short in comparison to LINK’s long third arrow. The assumption could be that once LINK overextended to the upside, 170% over the top of the bullish trend, it ran out of buyers and was exhausted.

If BTC now goes sideways for several months in the $17,000-$20,000 range, we might see LINK get a good bounce off the top trendline and test ATHs or perhaps an over-correction going below the bottom trendline before it continues up.

These next two charts show LINK during the last couple of months using the 4hr candle.

The first one is LINK/USDT. If you only use USDT pairings for altcoins, you will not be getting the full picture when it comes to finding your best trading opportunities. As this graph shows, LINK is bullish when paired to USD.

On this next graph, LINK is a bear against BTC in the same time frame. So if we assume BTC will rise over time against all fiat currencies such as USD, should we not be basing our trades according to BTC.

If we average out LINK/USD upward trend in the two-month chart, it is 35% in profit. The second chart with LINK/BTC is at a loss of -15%, and BTC in the same time frame, is up against USD 59%. It is up to you how you trade, but we advocate to make BTC your base currency and not an inflationary government currency.


From _CryptoSam on Twitter, the LINK/BTC graph shows touching the top of the trendline four different times during the downward trend that started mid-August.


There have been several social media postings in 2020 saying that LINK will go to $1000. Here is a video that gives a reasonable avenue for it to go that high. The two targets to reach is for BTC to go to $100k and LINK to hit a valuation of 0.01 BTC in around 2023. The increase from our current approximate 0.0008 price would be about 11x upside or from LINKs all-time-high in August 2020 of almost 0.0017 is only another 5x increase. As BTC heads toward $100k, will LINK continue to trend upward is an answer we will know in the future. Everything corrects and many can go into extended periods of downward spirals and never pull out of it. However, we do like the assumptions made in this video, even if some will find them far-fetched.

The popular saying amongst many LINK marines is "1,000 LINK EOY." Of course, we generally do not get bogged down in the details of the year in which we are referring. In this video, we take a more pragmatic approach and investigate if a $1,000 LINK is even theoretically possible this market cycle. To investigate this, we focus on the LINK/BTC valuation over the macro-scale and try to better understand where Bitcoin is headed. If we can better grasp where Bitcoin may be headed over the next few years, and also identify the general trend that LINK is in against BTC, then using simple stoichiometry we can come with a crude approximation to a future LINK price in USD.


Disclaimer: Nothing in this newsletter is intended to serve as financial advice. Therefore, do your own research and due diligence before applying any of the techniques highlighted in this post. Any risks or trades based on this newsletter are committed at your own risk.