Rising Bitcoin prices don’t always translate into strong returns from other cryptocurrencies. Bitcoin’s dominance of the total crypto market has been surging since November 2022, rising from 38% to 64% in that 30-month period.
Chainlink had a total market value of $3.8 billion on November 30, 2022. That was about 0.44% of the crypto market as a whole. The coin price is up by 78% since then, far behind Bitcoin’s 537% price jump. Chainlink’s footprint on the crypto market has shrunk to 0.26%.
Why Chainlink isn’t just a weaker Bitcoin
So Chainlink has underperformed Bitcoin in recent years — but why?
First and foremost, Bitcoin is becoming a fairly standard asset nowadays. It’s a limited-inflation value carrier, comparable to gold in many ways. Its value is based on computing time and electric bills rather than physical gold bars, but the idea of a limited-supply accounting asset is easily understood. People are doing some very traditional things with Bitcoin now, like building corporate cash reserves and launching exchange-traded funds based on Bitcoin prices.
Chainlink is a different beast. It’s harder to grasp how this coin creates value — and value storage isn’t its main purpose.
As an oracle coin, Chainlink’s job is to collect and distribute data throughout the cryptocurrency ecosystem. You can use it to read the current market prices of various cryptocurrencies, stocks, and other assets. Chainlink can also track weather data, real estate prices, flight times, and more.
This data comes in handy for smart contracts, automating things in the blockchain-based cryptocurrency world. With Chainlink’s real-world data feeds, you can set up Ethereum (CRYPTO: ETH) smart contracts to take action. Like, sell this non-fungible token when its price reaches $100, or transfer some Bitcoin to an emergency fund when the wind speed in Tampa hits 80 mph.
These are simple examples, and developers can take more sophisticated actions. The smart contracts can be written for Ethereum or Solana (CRYPTO: SOL) or Avalanche (CRYPTO: AVAX), just to name a few popular platforms. And the common denominator is Chainlink. Other oracles exist, but none come close to Chainlink’s market reach.
So if you want to make a Web3 app, or a decentralized finance tool, or some other program that depends on smart contracts, you pretty much have to rely on Chainlink’s data. And every data request generates a tiny fee, which is distributed to coin holders who support data security by staking their Chainlink coins.
Chainlink’s value creation makes sense when you think about it, but it’s not as simple or obvious as the Bitcoin model. That’s why Chainlink’s price chart has lagged behind Bitcoin’s recently — setting patient investors up for greater long-term gains. This oracle coin won’t be misunderstood and underestimated forever.
Long story short, a Chainlink investment is a bet on smart contracts and the apps you can build around them. From tokenized real-world assets to blockchain-based digital wallets, Chainlink will build plenty of usage-based value as these next-generation financial management ideas go mainstream.
As such, I see a bright long-term future for Chainlink and its early investors. None of the catalysts I listed above have gained much traction yet, and Chainlink is waiting for the first killer app. It will probably never be a trillion-dollar asset, like Bitcoin is today, but there’s plenty of room for wealth-building growth with much lower market caps.
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Chainlink wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Anders Bylund has positions in Bitcoin, Chainlink, Ethereum, and Solana. The Motley Fool has positions in and recommends Avalanche, Bitcoin, Chainlink, Ethereum, and Solana. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Read more on NASDAQ Stock Market
