Chainlink (LINK) has been one of the most successful cryptos of 2020, at least up to this point, with an explosive 750% rally from $1.68 in the middle of March to as high as $14.32 this Sunday. This rally pushed the Chainlink market cap up to $5 billion, rocketing Chainlink into the #6 position on CoinMarketCap between Bitcoin Cash (BCH) and Bitcoin SV (BSV).
Although Chainlink is holding at #6 on CoinMarketCap for now, it seems the demise of this astonishing pump is imminent. Since Sunday Chainlink has declined from $14.32 to $12.70, a drop of 11%, which corresponds to a $0.5 billion loss of market cap.
This is enough of a price drop to spark a chain reaction. Since Chainlink is overvalued, as soon as the market shows signs of weakness, like it is now, investors will begin dumping en masse in order to get out before incurring big losses. Indeed, Chainlink has been constantly declining for 48 hours as of this writing.
This is especially true since the Chainlink rally does not appear to have much fundamentals behind it. The only way this impressive rally would hold up is if the Chainlink network was rapidly growing, and becoming a serious competitor to Ethereum (ETH). In reality, the Chainlink network is actually shrinking, indicating that this entire rally is just speculation.
Indeed, Chainlink’s rise to all-time highs over the weekend was fueled by a derivatives short squeeze.
The only fundamental appears to be that Chainlink is a popular crypto in the Decentralized Finance (DeFi) space, and DeFi has been booming. However, now that Chainlink is beginning to steadily drop, DeFi users who use Chainlink will likely switch to other cryptos for their DeFi needs.
Essentially, although hardcore Chainlink supporters think that Chainlink is rallying because it’s going to overtake Ethereum (ETH), nothing indicates that this is the case, and really this is just a speculative rally that was sparked by DeFi inflows.
Zooming out, the biggest problem with Chainlink is it has an incredibly centralized supply. 350 million Chainlink are in circulation, compared to the total supply of 1 billion Chainlink, meaning the Chainlink developers hold hundreds of millions of Chainlink. This poses an extreme centralized risk, since the Chainlink developers could easily collapse the market even if they dump just a fraction of their holdings.
Compare this to Ethereum (ETH), which has zero supply centralization. Considering this, it is unlikely the crypto world would ever collectively decide to replace Ethereum (ETH) with a centralized crypto like Chainlink.
Ultimately, it appears Chainlink is a classic crypto pump and dump, and Chainlink has pumped so hard that its market is now incredibly fragile and ready to pop, and it appears that collapse is already underway. Based on this, it is obvious that Chainlink investors should get out now while they still can, since a dump like this can progress incredibly quickly.