Chainlink is down 30% from its all-time high, but on-chain and derivatives indicators show there is increasing interest from investors.
Chainlink (LINK) has had a pretty rough month, dropping as much as 45% after marking a $37 all-time high on Feb. 20. While the recent losses may look surprising when compared against other altcoins' gains, LINK still managed to rally 640% over the past nine months.
Therefore, there should be no reason to interpret the failure to sustain above $32 as a trend reversal. On-chain indicators like daily active addresses and transactions, along with the open interest on futures contracts, continue to display strength.
Chainlink was also very well positioned to benefit from the decentralized finance (DeFi) boom. Many of the price feed that connect separate blockchains and decentralized exchanges utilize their price oracles for price discovery.
The project was proactive when Ethereum network fees skyrocketed and quickly adapted to "off-chain reporting," which replaced on-chain data aggregation with an off-chain consensus round. As previously reported by Cointelegraph, "The aggregated data is then passed on to the blockchain, where a smart contract verifies that a quorum of nodes agreed on this version of the data."
Even with strong growth in DeFi and healthy on-chain indicators, the impressive thing is that LINK price is struggling to retake the $30 support.
On-chain data displays strength
Transfer value is a leading on-chain indicator measuring user activity as it adds up all the coins moved daily. Analysis from CoinMetrics provides more precise data by adjusting these figures to exclude mixers and transactions between the same entities.
Daily adjusted transfers have been hovering around $600 million, a 235% accumulated gain since the start of 2021. The current level is two times larger than Litecoin (LTC), a cryptocurrency with a 7% larger market capitalization, but the project's primary use-case has been declining as second-layer scaling solutions evolve.
Daily active addresses are another vital on-chain metric, albeit easily inflated when transfer costs are relatively low. Considering Chainlink runs on the Ethereum network, this most certainly could not be the case.
As the data above indicates, despite the recent drop, Chainlink's daily active addresses have held above 10,000. One should factor in the rising Ethereum network fees, which might explain the failure to produce new highs. Nevertheless, the indicator's 14% gain in 2021 can be deemed positive.
Futures contracts demand held strong
Had top traders given up on Chainlink or somehow lost interest, the futures contracts open interest would have been impacted. Even though this metric does not necessarily dictate bullishness, a healthy amount of activity in derivatives indicates that investors are interested.
The above data shows no evidence of a reduction in the open interest on futures contracts. The sharp drop on Feb. 21 and Feb. 22 reflects the 41% price crash that took place. Meanwhile, less than a week later, LINK regained the $26 support level, and its futures open interest continued to increase.
If the current bullish market conditions persist, investors may begin to speculate that an 'altcoin season is at hand. Currently, Chainlink looks well-positioned to benefit from the peak in DeFi interest.
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