Shaurya Malwa · 12 hours ago · 2 min read
Disclaimer: This article contains technical analysis, which is a methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. The content presented in this article is the opinion of the author. None of the information you read on CryptoSlate should be taken as investment advice. Buying and trading cryptocurrencies should be considered a high-risk activity. Please do your own diligence and consult with a financial advisor before making any investment decisions.
Josh Rager, a respected crypto trader, noticed a strong relationship between one on-chain metric and the price of Chainlink.
Primer on Chainlink
So far, Chainlink has had an amazing year. Since early December 2018, LINK went through a bull rally that took its price up nearly 26x. Along the way, Google published a guide on how to use the service with its cloud-based offering and Coinbase and Coinbase Pro listed the coin.
On June 29, 2019, Chainlink peaked at $4.80. Since then, its price has retraced 59 percent. And one on-chain metric could show where it is headed next.
Using exchange deposits as a leading indicator
LINK’s price action since May 2019 appears strongly correlated to exchange deposits, according to Josh Rager, co-founder of Blockroots. This metric takes into consideration the total count of transfers to exchange addresses based on on-chain data.
Rager noticed that three different spikes in total transfers were closely followed by price corrections for LINK. These deposits could also be related to growing evidence that the team at Chainlink is liquidating part of their holdings.
The first one occurred on May 27, when the number of transfers to exchanges hit 186 while the price of LINK was hovering around $1.33. The spike in the amount of transfers was succeeded by a 40 percent correction that took this cryptocurrency down to $0.79 on June 4.
The second instance happened on June 18. As the amount of exchange deposits jumped to 132, LINK reached a high of $2.05 to then plunge nearly 24 percent over the following day.
Finally, after this cryptocurrency reached an all-time high of $4.80 on June 29, exchange deposits rose to 372 on July 3. The rise was followed by a 53 retracement in LINK’s market valuation.
By utilizing on-chain metrics, in combination with traditional technical indicators, Josh Rager believes it is easier to evaluate possible price outcomes for a cryptocurrency. As a result, the spike in exchange deposits volume that was seen on Aug. 25, could lead to another pullback.
Chainlink technical analysis
Although LINK retraced 11 percent from the highest price point of Aug. 25, it continues to trade around the same price levels as it did that day. Nonetheless, the Bollinger bands for LINK appear to be squeezing on the 1-day chart.
Squeezes are usually followed by periods of high volatility. The longer the squeeze the higher the probability of a strong breakout. Thus, the range between $2.03 and $2.70 seems like a reasonable no-trade zone for those looking to limit risk.
A break of support or resistance could be used to confirm the direction of LINK’s next impulse. An increase in selling pressure behind this cryptocurrency could signal a drop to the next level of support, around $1.74, which will validate the ideas presented by Josh Rager. Meanwhile, an increase in buying pressure that takes Chainlink above $2.70 could allow it to surge to $3.15.
According to Josh Rager, an increasing number of exchange deposits are correlated to declining LINK prices. This metric, however, is not guaranteed. But it’s still worth paying attention to, as another influential trader, The Crypto Dog, affirmed.
When looking at the 1-day chart, it seems that Chainlink has been trading within a $0.67 range for over a month. Therefore, it would be wiser to wait for LINK to break below $2.03 or above $2.70 before entering a bearish or bullish trade in order to minimize exposure to this highly volatile altcoin.