How Chainlink’s Resilience in October May Brighten Its Outlook

KEY TAKEAWAYS

  • Chainlink (LINK) recorded a 13.76% gain, amid the decentralized finance (DeFi) downtrend, emerging as the only major DeFi token to experience gains in October.
  • Its rally in October could be attributed to whale hodling, rising development activities on Github, and positive market sentiment

Chainlink topped the list of best performing DeFi cryptos collated by CoinMarketCap. Trailing closely in second place was wrapped BTC (wBTC) – a token that reflects the value of BTC and has experienced meteoric rise since launch. While Dai is a stablecoin, Aave was recently back on major exchanges after being rebranded from LEND. Owing to the different nature of these coins, it is difficult to compare wBTC, Dai, and Aave with the rest of the clan. 

Top ten DeFi-focused cryptocurrencies. Source: CoinMarketCap.com

Measuring against the top performing DeFi-related cryptocurrencies, with the exception of wBTC, Dai, and Aave, we observe that Chainlink is the only DeFi-focused cryptocurrency to rally in October. Its strong uptrend posed a stark contrast against major DeFi tokens that saw sharp losses. Uniswap, Maker, Synthetix, Yearn.Finance, UMA, and Compound recorded losses of -45.56%, -16.16%, -36.32%, -55.95%, -24.10%, and -31.93%, respectively.

Chainlink’s rally in October amid the DeFi market slump could be attributed to four possible reasons. The record-high total value locked (TVL) in DeFi, the accumulation of LINK by whales, rising development activity on Github, and positive monthly moving averages could have buoyed the market sentiment around LINK.

The momentum of Chainlink, which bridged over from October, could likely buoy Chainlink’s strong performance throughout November. 

Whales Accumulating

According to researchers at Santiment, an on-chain market analysis firm, the top 100 Chainlink addresses have steadily accumulated LINK, particularly since early October.

Top 100 non-exchange whale addresses accumulate LINK. Source: Santiment

Santiment found that the amount of LINK held by top addresses has continuously and steadily increased since the start of October. This shows whales that already hold large amounts of LINK have been adding to their piles. The massive accumulation of tokens may in turn exert upward pressure on the price, considering LINK has a fixed supply of 1 billion tokens 

“If this isn’t the depiction of steady accumulation for chainlink’s top 100 non-exchange whales in the past year, we don’t know what is. LINK’s offline increase in tokens at this rate truly shows confidence in the asset from those with most at stake,” the researchers wrote.

The reaccumulation of a cryptocurrency during an uptrend is considered optimistic because whales tend to take profit during rallies. October was an especially good time for whales to sell because LINK was rallying while the broader DeFi market was correcting.

Whales seek liquidity when they trade because they deal with large orders. A multi-million dollar market sell order when there are fewer buyers in the market could cause a highly volatile price movement. Hence, it is normal for whales to wait for a rally and then take profit on their positions.

All-Time High DeFi TVL and a Safe DeFi Bet

The growing accumulation of LINK by whales coincided with the recovery of the total value locked in DeFi protocols.

As of the end of October, data from Defipulse.com showed that there was over $12 billion locked in DeFi platforms. The all-time high for this metric is $12.46 billion, achieved on October 26. This shows that despite the deep pullback of DeFi tokens last month, there is confidence and appetite for DeFi services and products.

Owing to the explosive growth in popularity of DeFi applications, oracles have become a fundamental layer of the Ethereum blockchain infrastructure. At its core, Chainlink is a blockchain network specialized in providing oracles that enables DeFi platforms to obtain accurate market and price data. Chainlink benefits from the overall increase in demand for DeFi because it provides data to DeFi protocols. 

JP Vergne, a professor at UCL School of Management noted, DeFi is primarily built on three components: decentralized money (e.g. BTC, Dai), a smart contract platform (e.g. Ethereum), and an oracle (e.g. Chainlink).”

Chainlink could see stronger momentum in November if the DeFi sector continues to see an uplift in momentum. Even if major DeFi tokens continue their correction, as seen in October, there is a probability that LINK will remain resilient.

Since the amount of capital locked in DeFi protocols is rising in tandem with the market price of major DeFi projects, there is a case to be made that the confluence of the two could further amplify the positive market sentiment around LINK.

Monthly Moving Averages at First Support

Traders typically utilize three moving averages (MAs) to gauge the short to medium-term momentum of an asset. Due to its strong performance in October, Chainlink is now hovering above the 5-month MA on the monthly chart. Since traders refer to the weekly and monthly charts as higher time frame charts, this depicts a healthy uptrend in the mid term.

The monthly chart of LINK. Source: LINKUSDT on TradingView.com

The weekly chart of LINK also closed above 5-week, 10-week and 20-week MAs, which indicates that buyers are in control of the short-term momentum. LINK has been treading above the 5-week MA on the weekly chart as well, demonstrating a steady upsurge. 

LINK has continuously recovered since September, with every weekly candle close occurring above the 5-week MA since October 12. This shows both weekly and monthly high time frame charts are indicating a gradual increase in buyer demand over a prolonged period.

The weekly chart of LINK. Source: LINKUSDT on TradingView.com

Rising Developer Activity is a Minor Positive Metric to Consider

Atop the accumulation from whales, a favorable high time frame chart, and the growing DeFi TVL, the development activity of Chainlink has been gradually increasing.

Although development activity is not a short to mid-term indicator for price, it shows that the fundamentals of the blockchain are improving.
Santiment researchers described Chainlink’s spiking Github activity as “a positive sign for the asset’s sustainability and longevity.” Over the longer term, a high level of development activity would likely supplement other technical and fundamental factors that could push the price of LINK upwards, as the three abovementioned catalysts.