Chainlink (CCC:LINK-USD) has had a volatile year so far. After closing at $11.87 on Dec. 31, LINK crypto is now at $22.26, as of early Sept. 22, 2021. This means its performance year-to-date (YTD) is almost double (i.e., +87.5%).
However, in 2021, Chainlink has had a roller coaster ride. It spiked to $52.20 on May 8 and then dropped like a rock to a low of $13.78 on July 19. Subsequently, LINK spiked again by 61.5% to $22.26 as of Sept. 22. Chainlink is now the 15th largest crypto, according to Coinmarketcap.com, with a market value of just over $10 billion ($10.1 billion).
Chainlink’s Correlation With Ethereum
Its performance is also highly correlated with Ethereum (CCC:ETH-USD), the second-largest cryptocurrency with a $336 billion market cap as of early Sept. 22. For example, Ethereum is up about 294% YTD, but from its recent trough also on July 19, it is up 61% to $2,877 as of early Sept. 22. This is similar to the 61.5% spike in LINK crypto since the same trough date.
Part of the reason for this correlation is that developers are looking to make Chainlink a large smart contract blockchain network, just like Ethereum. Ethereum is the largest smart contract platform so far. It has the most Defi (decentralized finance) apps and other Dapps (decentralized apps). These are essentially smart contracts that do not require a bank or brokerage firm or any kind of trustee to implement investors’ trades and activities.
Its Smart Contract Functions
Chainlink focuses on smart contracts as well. The Chainlink protocols rest on top of Ethereum blockchain software. Chainlink Labs is a non-profit foundation focused on promoting Chainlink’s smart contract capabilities with different apps and companies.
Chainlink is an “oracle” platform. Blockchain oracles provide specific outside electronic data that is tailored for use in specific smart contracts. The smart contracts need this “oracle” data to execute their applications.
For example, here is how Chainlink Labs describes Chainlink’s function and focus:
“Securely connect smart contracts with off-chain data and services. Chainlink decentralized oracle networks provide tamper-proof inputs, outputs, and computations to support advanced smart contracts on any blockchain.“
Moreover, Chainlink is now gaining a reputation as a viable platform to develop NFTs (non-fungible tokens). According to a tweet on Twitter (NASDAQ:TWTR), Chainlink can now provide a competitive and dynamic edge to NFT developers who are looking to create popular NFT marketplaces.
These are like trading sites for owners of NFTs in specific industries or hobbies. NFT marketplaces are taking off in popularity to allow people to buy and sell NFTs in the art, music and video sectors. Chainlink Labs wants Chainlink to grab a large market share in the creation of NFT marketplaces using its security and swift transaction features as drawing points.
For example, a new art-oriented NFT marketplace called Polkally announced it was going to integrate Chainlink into its NFT marketplace. It wants to use Chainlink’s “oracle” functionality to provide continuous and outside cryptocurrency price feeds into the NFT marketplace.
Where This Leaves Investors in LINK Crypto
The correlation between Ethereum and Chainlink is actually higher than you might think. For one, as a recent author points out, “Ethereum can’t use real-world data on its blockchain, isolating it and limiting the potential use cases it has.”
On the other hand, Chainlink can “connect the real world with the Ethereum blockchain, making it usable for businesses and institutions outside the crypto-space.”
This means that the price of LINK crypto will continue to have a huge correlation with Ether tokens, at least in terms of absolute performance going forward. Moreover, given that Chainlink has a lower price base, it’s possible investors in LINK crypto could end up with a higher absolute performance over time. Look into Chainlink, especially during times like right now as cryptos are trading lower.
On the date of publication, Mark R. Hake held a long position in Ethereum but not any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.