Cryptocurrency Market Round-Up

In general parlance, cryptocurrencies use blockchain technology to record every transaction and are termed digital currencies. There are ~9k+ crypto coins available in the market. Chainlink (LINK) is a decentralized cryptocurrency founded in 2017 which enables transactions through an oracle network. The Chainlink network is run by a large open-source community and uses blockchains technology to interact securely with external data feeds. LINK has a market capitalization of ~USD 12.14 billion (as per TradingView as of December 01, 2021).

Last week, the benchmark S&P Cryptocurrency Broad Digital Market (BDM) Index started on a positive note but settled in the red. The index declined by 249.41 points (~4.58%) to 5195.90 for the week ending November 26, 2021. For the current week, the index is trading with a positive tone. Other major cryptocurrencies such as Bitcoin and Ethereum also witnessed an upward momentum for the week.

Having understood the S&P Cryptocurrency BDM Index movement over last week and scenario for the upcoming week, one cryptocurrency that seems ‘Attractive’ at the current level appears to be Chainlink (LINK) basis the below technical parameters: -

Noted below are the generic insights, indicative entry price, resistance levels, and stop-loss for the next 1-2 weeks duration for the LINK: 

Entry level and Resistance Levels as mentioned herein are only indicative in nature as per trend analysis and further evaluation is required when looking at cryptocurrency under discussion.

Note: The reference Information in this report has been sourced from TradingView.

LINK Technical Analysis Summary (On the 4 hourly Chart):

On the 4 hourly chart, Chainlink price broke the falling channel pattern at USD 25.32 level on November 30, 2021. After the breakout, prices have sustained above the upper band of the channel pattern. Moreover, the prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, indicating a bullish trend. The momentum oscillator RSI (14-period) is trading at ~56.55 level indicating positive momentum in the crypto. 

The prices are trading above the Parabolic SAR indicator, which may act as a support zone. Now the next crucial resistance level appears to be at USD 30, and prices may test that level in the coming sessions (1-2 weeks).

Noted below are the key positives and negatives when looking at Chainlink in the cryptocurrency space: -

Key Positives

• Growing Significance: LINK is a cryptocurrency that aims to incentivize a network of computers globally to provide real-world data to smart contracts running over the blockchains. With Chainlink 2.0, hybrid contracts can be executed taking information from off-chain networks.
• LINK Tokens: The data feeds from oracle helps to execute the smart contracts in blockchain. To incentivize the data accuracy, LINK tokens (ERC677 tokens) were paid to node operators in the Oracle network. Smart contracts enhance blockchains that can execute tamper-proof code, besides storing the tamper-proof data.
• Efficient and Secured Smart Contracts: Chainlink’s high-quality node network securely validates the data computations from off-chain sources with more scalability and runs smart contracts efficiently. The decentralized computation provides reliable and secured applications.

Key Negatives

• Decentralized Data: Chainlink relies upon the oracle network. With the limited number of oracles, the data can be more decentralized. Also, the development speed is lower which may affect the real working solution for executing financial transactions.
• Limited Supply: Out of the total, only 45% of LINK tokens are currently under circulation (according to CoinMarketCap). The others are held as rewards to node operators and tokens placed under smart contracts.
• Fee-based: LINK Tokens runs on Ethereum and charges a fee to those participating in transactions. Unlike Bitcoin, it doesn’t have a lifetime limit on the number of coins and hence this may affect the price.

Conclusion:

Based on the above-mentioned price action analysis and technical indicators outlook, Chainlink may witness movement in an upside direction. The trend looks to be in an interesting space and the currency looks ‘Attractive’ given the current price of USD 25.031 (as on December 01, 2021, at 12:38 am, (GMT-5) Time in Eastern, KY, USA). However, volatility in the price should be borne in mind when looking at further evaluation for investment scenarios.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 1-2 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within a short investment duration. Insights provided in this report are solely based on technical parameters; however, there are other factors which could impact Cryptocurrency prices which include market risks, regulatory risks, interest rates risks, and social and political instability risks, etc.

Entry Price: The Entry Price is assumed to be at or above a certain level. In general, a slight deviation in entry price can be considered within a certain range (3%-5%) depending upon the upside potential expected and taking into consideration the Resistance1 and trailing stop-loss levels indicated for the currency.

Note 1: In general, an exit position can be considered if the Resistance Levels or Indicative Stop loss mentioned as per the technical analysis has been achieved. 

Note 2: How to Read the Chart?

The Green colour line reflects the 21-period simple moving average (SMA) while the red line indicates the 50-period SMA. SMA helps to identify existing price trends and if the prices trade above the 21-period and 50-period SMA, then in general it shows an uptrend trend.

The Black colour line in the chart’s lower segment is a 14-period Relative Strength Index (RSI) which indicates momentum in trend. A reading of 70 or above suggests overbought status, while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the Cryptocurrency. The volume is the quantity that changed hands during the given period. Cryptocurrencies with high volumes are more liquid compared to lesser once and higher volumes help in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the cryptocurrency prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the cryptocurrency prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the cryptocurrency prices.

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. It is suggested to monitor the price carefully looking at ~60% Stop Loss of Resistance 1 from the entry point. 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. It is suggested to Trail the Stop-Loss as per the aforementioned levels if the Cryptocurrency price achieves more than 60% of the Resistance 1. Investors, in general, might consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 60% of Resistance 1. However, these indications need further evaluation basis associated risks and any change in trends. 

The reference date for all price data, volume, technical indicators, support, and resistance levels is as of December 01, 2021, at 12:38 am, (GMT-5) Time in Eastern, KY, USA. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any Cryptocurrency evaluation. The above are illustrative analytical factors used for evaluating the Cryptocurrency; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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