Chainlink is a blockchain oracle governed by its namesake token (LINK). Blockchain oracles provide data to smart contracts outside of the blockchain and are a critical foundation of the decentralized finance (DeFi) ecosystem. Like most cryptocurrencies, LINK is volatile and experiences rapid price fluctuations. While many long-term holders believe in Chainlink’s promise to upload the world’s data to the blockchain, many traders seek to profit from these price swings.
A beneficial practice used by traders is to understand trading signals. One of the advantages of cryptography is that the data is transparent on-chain. While you can go straight to the source, you can also use websites and technologies that help you sort through the data and make it digestible.
One of the best resources for Chainlink trading signals is IntoTheBlock. Here’s a deep dive into on-chain trading signals with this website below.
Chainlink on-chain trading signals analysis
Holders earn money at current prices
It is one of the most useful Chainlink trading signals. It displays the percentage of LINK holders who are in the black (positive) on their transaction. From the data above, you see that many more holders are in the red (negative) since buying LINK. This signal often means that investors are still holding despite the token’s sharp price drop. As it comes under downward pressure, fewer holders can take profits. An individual signal is usually not enough to base a trading decision on.
Concentration by large carriers
This commercial signal concerns total detention by whales and large holders. A whale is classified as a holder who holds more than 1% of the circulating supply of a token; a large holder owns more than 0.1%. Data from the block shows that well over half of LINK tokens are held by whales or large holders. This metric is not unusual for a project like this, as typically a core group of team members, advisors, and early investors receive a large amount of tokens at launch. However, traders may worry when holdings are too centralized as it goes against crypto ethics. This can pose a risk to traders, as whales can dump their holdings, causing the price of a token to quickly plummet.
Price correlation with Bitcoin
This section displays the correlation between the price movement and Bitcoin over the past 30 days. Most cryptocurrencies are highly correlated to Bitcoin and follow its movement closely. A key difference is that altcoins like LINK are generally even more volatile.
Composition of the holder by holding period
The composition of the holder by holding time shows the average length of time the token is held by its investors. You can see that in LINK’s situation, the majority of holders have held the token for a year or more. Longer-term holds are generally a bullish indicator, especially for longer-term investors. The price of a token ultimately depends on supply and demand, and if a large portion of the supply indicates that it will not sell, the price could very well rise. This metric is not the only aspect to look at and could change drastically if the whales start to pour out. Also, while more than a year seems like a long wait in terms of crypto, in the grand scheme of trading it is a short time to hold an asset.
Transactions over $100,000
This Chainlink trading signal displays the total amount traded in trades over $100,000 over the past week. It can be both bullish and bearish, but a token is more likely to experience low volatility and is often less promising if there are few large trades.
This metric explains whether transactions take place in Eastern time zones or in Western time zones. Understanding which demographic group trades certain currencies can be helpful in creating a thesis around the coin. Eastern and Western time zones are just the tip of the iceberg if you’re looking to dig deeper into this category.
Currency inflows and outflows
The exchange entry and exit trading signal describes the tokens leaving the exchange wallets versus those entering the exchange wallets. Centralized exchanges are basically the only way to sell crypto for fiat currency (USD, EUR, GBP). When investors send their cryptos to an exchange, it likely means they are getting ready to sell them. When they withdraw them to a personal wallet from an exchange, it usually indicates that they want to keep them. The data measures these flows over the past week, which can be one of the most important trading signals to understand the sentiment of traders holding LINK.
Is it a good time to buy Chainlink?
With the trend of the crypto market in bearish territory, it is difficult to make profitable short-term trades. The data shows mixed signals and investors are largely releasing cash and getting cash. However, Chainlink is showing bullish signals for long-term holders, with excellent technology and a high percentage of LINK owners holding longer than a year.
How to buy Chainlink?
Chainlink is an ERC-20 token on Ethereum and is offered on most crypto trading platforms. Popular exchanges like eToro, Binance.US, and Crypto.com offer the LINK token. If you want to learn more about the technical use of LINK, it might be a good idea to get a noncustodial wallet and buy through a decentralized exchange like Uniswap.
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How does Chainlink fit into the big picture?
Streaming data to the blockchain is going to be a long term need. By uploading real-world data to the blockchain, it can be further authenticated and used among different decentralized applications. The Chainlink network integrates off-chain data with the blockchain, allowing complex smart contracts to operate through a decentralized oracle network. However, it has competitors, such as optimistic oracles, on which Universal Market Access (UMA) – a DeFi protocol that removes the centralized brokerage firm and allows users to trade contracts similar to futures and options using smart contracts – currently working on.