ChainLink’s price has seen one of the best recovery after the crypto crash of March 2020 and is currently sitting around $3.5 per token and near ATHs, both in BTC and ETH terms.
For years, ChainLink has been one of the top crypto projects and ticks all the boxes to be considered as a good long term investment. Indeed Chainlink has:
A valid use case: solving price issues via decentralised oracles.
A working product: their product is live on mainnet.
Active users: their product is used by almost everybody in the crypto space and beyond.
A strong community: the ChainLink Army.
An attractive valuation? Let’s try to find out.
As Chainlink’s price continues to increase, are transactions and users also growing and following the trend?
But is it cheap or expensive at $3.5 per token?
We compare historical data of the blockchain, from September 2019 to April 16 2020 to get a sense of ChainLink valuation, both in terms of transactions and active users.
Analysing the blockchain
Before trying to assess if ChainLink is under or overvalued, let’s check the transactions and active users per day.
Transactions per day
We notice an increase in the number of transactions per day, starting in February 2020.
Transactions per day have meaningfully increased in the last few months as depicted by the below chart. The simple moving average 50 days sits near ATHs.
Active users per day
As for transactions, active users per day follow the same trend, it goes up from February 2020 and continues to climb. And it also sits near ATHs.
Both metrics are positive because it shows that ChainLink network is used more as the number of transactions per day goes up. On top of that, there are more users, so ChainLink’s business is expanding.
But now the question is simple.
Is ChainLink super expensive due to its price craze? Or not, thanks to its active users and transactions?
Let’s find out.
To value traditional stocks, financial analysts use different valuation models and ratio. A common practice is to divide the price by sales or book value (Price to sales, Price to book value, and so on).
In the crypto space, we see a lot of different ratios as there are no official conventions on which ones to use. As a result, we build two customs to value ChainLink; the Price to Monthly Active Users and the Price to Monthly Transactions.
Why do we use these two ratios?
Crypto assets can be seen as networks and the more they are used, the better they are. So we build our valuation with two components: transactions and active users.
We divide the price of the crypto assets by the two components mentioned above and we obtain two ratio, which points out if a project is currently undervalued or overvalued based on historical data.
The lower the ratio, the cheaper the crypto asset, based on history of data.
The below chart shows us that ChainLink was dirty cheap after the crypto crash, which happen beginning of March.
Because ChainLink price oracles continued to be used more and by more users. As the price recently skyrocketed, P / MAUs Ratio went up but is still lower than before the crash.
The Price to Monthly transactions gives the same trend.
If you do believe, a crypto project must be solely valued based on usage, namely transactions and active users, then the conclusion is that ChainLink is undervalued based on historical data, thanks to both higher active users and transactions.
ChainLink is a steamroller.
Thanks for reading
*If you did like this article and would like to support us, share it and subscribe to our paid subscription.
We deep dive into the crypto markets and are looking to find out the next ChainLink, early.
Why become a paid subscriber?
If you are willing to bet on the future success of DeFi and find the next ChainLink, early before anybody, this is the subscription you want to take.
It costs only $25 a month.
And you get:
Our watchlist: this is the list of crypto projects we are currently looking at.
Our watchlist of potential scams or doubtful projects.
Cheatsheet and tips on how to find great crypto projects and detect scams.
Follow ups on investments.
Quick market commentary to understand what happened and anticipate what’s next.
Archived articles: Full access to Secret Salsa archive.
BONUS: portfolio management tips, hedging strategies and learning tools.
Twitter handle: @SecretSalsa_
You understand that no content published on this website or on our social media channels constitutes a recommendation to buy or sell any security or cryptocurrency. You acknowledge that the content of this newsletter is for informational purposes only and does not constitute investment advice. Investment in cryptocurrency involves large risks and you are solely responsible of your investment decisions and should consult a financial professional to assess your own personal and financial situation. Secret Salsa Crypto Investment Ideas’ newsletter is not a registered investment advisor or investment company.