ChainLink Price Analysis - A decentralized oracle network
ChainLink (LINK) is a decentralized oracle network built on Ethereum. The network is designed to connect off-chain data sources, such as APIs, data feeds, or bank payments, to on-chain smart contracts. ChainLink went live on May 30th, 2019.
The market cap currently stands at US$1.08 billion, based on a 350 million circulating token supply, with US$108 million in trade volume over the past 24 hours. The current spot price is down 36% from the all-time high established in June 2019. Among the current top 20 coins by market cap, LINK has been the best performer in USD markets over the past year.
The founding LINK team is headed by Sergey Nazarov as CEO, and Steve Ellis as CTO. Advisors for the project include Ari Juels, Professor of Computer Science at Cornell Tech and Director of IC3, Andrew Miller, Associate Professor of Computer Science at the University of Illinois and an advisor to Zcash and Tezos, and Hudson Jameson, of the Ethereum Foundation.
The LINK ICO raised 114,285 ETH, or US$32 million, in September 2017. The tokens could only be bought with ETH. Tokens were sold privately before the ICO for 3,120 LINK/ETH, which was ~US$0.09, and came with a 20% bonus. Tokens in the public sale were offered at 2,600 LINK/ETH, or ~US$0.11. Both sales bring the combined circulating supply to 350 million LINK tokens. A further 650 million LINK tokens were issued, 55% of which will be used for node operators and ecosystem rewards, while 45% were allocated to the LINK parent company, Smart Contract Limited.
Smart Contract Limited was founded in September 2014 and was selected as a "2017 Blockchain Applications Cool Vendor” by Gartner. Smart Contract Limited partnered with the interbank messaging platform, SWIFT, after completing a phase-one proof-of-concept in June 2017.
Since the ICO, Smart Contract Limited appears to have sold 27 million tokens, or about US$30 million at the time of sale, based on available wallet data. The remaining tokens appear to have no lock-up or vesting schedule.
LINK is an ERC-20 token, with the additional ERC-223 “transfer and call” functionality of transfer, allowing tokens to be received and processed by contracts within a single transaction. The LINK token is used to pay ChainLink Node operators for the retrieval of data from off-chain data feeds, formatting of data into blockchain readable formats, and off-chain computation. The number of node operators has continued to grow steadily since launch.
The decentralized network has three approaches for preventing faulty data and reducing single oracle vulnerabilities. Data sent through the network is curated and verified through majority voting, which prevents a single point of failure in the oracle system. The network also cycles through oracles and introduces a reputation and certification system for oracle performance. Hardware components also protect the integrity and confidentiality of data to ensure tamper-proof and private data transfers between oracles and smart contracts.
When a smart contract requests data from ChainLink, every node in the network submits their data and the nodes put their LINK tokens at stake. If the node is found to have submitted bad data, their LINK tokens are distributed to all nodes that submitted good data. This punishment system incentivizes a continuous stream of honest data from decentralized sources. The network currently supports Ethereum, Bitcoin and Hyperledger with partnerships including Google, Intel, and Oracle.
On the network side, the number of on-chain transactions per day (line, chart below) and average transaction value in USD (fill, chart below) have been inversely related since mid-May. Transactions per day hit an all-time high of nearly 14,000 on June 29th, while average transaction values are currently sitting at an all-time low of US$1.50. Average transaction values reached US$86,000 on November 29th, 2018.
The 30-day Kalichkin network value to on-chain transactions ratio (NVT) has ranged wildly over LINK’s short history and recently hit an all-time low in late September. A rising NVT suggests the coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator.
The number of monthly active addresses (fill, chart below) has changed in line with the LINK/USD price. From May to July, monthly active addresses (MAAs) increased 13x, reaching an all-time high of nearly 2,400, while the USD market price increased nearly 6x. On June 29th, active addresses surpassed 10,000. A sustained increase in MAAs should be seen as a bullish indicator for price.
The chainlink project has 54 Repos on Github with the most active repo accruing 3,549 commits over the past year. Most coins use the developer community of Github where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.
LINK exchange-traded volume over the past 24 hours has been dominated by the Bitcoin (BTC) and Tether (USDT) trading pairs on Binance and Coinbase. Ethereum (ETH) and U.S. Dollar (USD) pairs make up a substantial portion of the reported volumes.
LINK has benefited from several pair additions on several exchanges over the past two years, unlocking high levels of global liquidity. LINK/BTC pairs were added to Binance in September 2017, Huobi in January 2018, and Hitbtc in July 2019. LINK/USDT pairs were added to Huobi in December 2108, Binance in January 2019, and Hitbtc in July 2019. LINK/USD pairs were added to Coinbase in June 2019 and Kraken in September 2019. LINK/ETH pairs were added to Binance in September 2017, Huobi in January 2018, Coinbase in June 2019, Hitbtc in July 2019, and Kraken in September 2019.
Worldwide Google Trends data for the term “chainlink crypto” increased dramatically from April to June this year, corresponding with an increase in LINK spot prices. Interest appears to have dropped since peaking in June, with fleeting and smaller peaks in interest. The peak far exceeded initial interest during the ICO.
A slow rise in searches for "bitcoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. However, a 2015 study found a strong correlation between google trends data and BTC price whereas a 2017 study concluded that when U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
Technical Analysis
On the twelve-hour chart for the LINK/USD market, the spot price relative to the 50-period Exponential Moving Average (EMA) and 200-period EMA can be used as a litmus test for the trend.
These key EMAs have been bullishly crossed since October, with price holding above the 50-period moving average. The Volume Profile of the Visible Range (VPVR, horizontal bars) also shows strong volume support below the current price. Additionally, there are no strong bearish divergences to suggest waning bullish momentum
Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
On the twelve-hour chart, Cloud metrics are bullish; the spot price is above Cloud, the Cloud is Bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above price. The trend will remain bullish as long as the spot price is above the Cloud. The current Kijun support sits at US$2.718, which also matches a historic high-volume node.
On the daily LINK/BTC chart, trend metrics are also bullish; price is above both the 200-day EMA and the Cloud. Again, the trend will remain bullish while the spot price is above these two critical levels.
Additionally, there is a potential cup and handle pattern which carries a bullish bias. The hallmarks of this pattern include a U-shaped price structure with a higher local low then forming the handle. Buyers will likely aggressively return if price breaks above the 36,000 sat zone. The 1.618 fib and measured move of this pattern yield a target between 50,000-57,000 sats.
On the daily LINK/ETH chart, trend metrics are also bullish; price is above both the 200-day EMA and the Cloud. Again, the trend will remain bullish while the spot price is above these two critical levels. Additionally, there is a potential inverted head and shoulders pattern which carries a bullish bias. The hallmarks of this pattern include a series of local lows with an extreme low in the middle. The resolution of this pattern would likely bring the spot price above the 0.022 ETH level.
Conclusion
As more and more non-compatible blockchains, APIs, and datasets begin to emerge, so has the need to bring interoperability to the on-chain and off-chain worlds. LINK aims to solve this problem through a decentralized oracle network of node operators, incentivized to propagate accurate data by staking LINK. Thus far, LINK has established impressive proofs-of-concept or partnerships with SWIFT, Google, Oracle, and Intel, which are all related to banking settlements and cloud computing.
On-chain metrics for the LINK token, Github dev activity, and Google Trends all show a strong or continuous uptick in activity over the past several months, which supports the recent bullish rally. However, this on-chain activity is likely related to speculative demand and not organic use of the network. Additionally, the tokens held by Smart Contract Limited can be sold at any time.
Technicals for the LINK/USD, LINK/BTC, and LINK/ETH pairs all suggest a bullish outlook. Spot prices are above key trend metrics in each of these markets, suggesting a strong and active bullish trend. The LINK/USD pair is likely a return to post record highs near US$4.50 in the near future. Both the LINK/BTC and LINK/ETH pairs are showing signs of new all-time highs on the horizon, at 50,000 sats and 0.022 ETH respectively. If prices move higher, LINK tokens held by Smart Contract Limited may again be sold, as was the case in July through August this year.
OhNoCrypto
via https://www.ohnocrypto.com
Josh Olszewicz, Khareem Sudlow