Down 10% in 1 Week, Is Chainlink Still a Buy?

Key Points

• Chainlink's price took a bit of a hit in late September.

• It's still the leading solution for oracle services and cross-chain interoperability.

• 10 stocks we like better than Chainlink ›

If you judge a coin by a single week, the odds are pretty good that a lot of solid investments will look bad. The better habit is to ask whether the engine that creates value is still running. For Chainlink (CRYPTO: LINK), the week from Sept. 21 to Sept. 28 brought roughly a 10% slide.

So, is the engine of value creation still running, and is this coin still worth buying?

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Image source: Getty Images.

The thesis hasn't broken

Chainlink's investment thesis starts with the premise that most useful blockchains need trusted sources of real-world data, and that they also need a mechanism for secure cross-chain messaging to provide a bridge for external assets, thereby giving capital a path to flow in from competitors. In technical terms, it's an oracle coin.

Chainlink is the leading network for solving both of those problems, as it secures the largest share of data-dependent value in decentralized finance (DeFi), with its total value secured (TVS) of $63.3 billion. You can think of TVS as a metric that describes the aggregate value of all the different products and services that use Chainlink's data oracle services. So the takeaway here is that it's consistently providing a lot of data for economically useful applications.

As a result of that usage, Chainlink is generating revenue from customers consuming data and services, which is a direct indication of demand; during the past 12 months, it brought in $8.7 million in revenue. It also has a market share of 92.7% in the crypto interoperability and data segment, so it's quite dominant within its target domain, though some competitors do exist.

As a result of continuing tech development, the product surface and thus the total addressable market for Chainlink keeps widening. Its flagship Cross-Chain Interoperability Protocol (CCIP) is already live across many networks. CCIP's design aims to move both tokens and messages securely across crypto ecosystems, a capability that becomes more valuable as assets, apps, and users spread out.

That broad reach is bullish because the next wave of crypto adoption will be multi-chain by default, and Chainlink is well positioned to operate and generate revenue on and between any given emerging chains. And that's before even getting into any new services it might develop to market to the networks where it's already being widely used today.

The catalysts investors should watch next

Chainlink's future looks quite promising, and its price declining in late September doesn't do anything to change its investment thesis. It's still worth buying.

As stated above, the big driver for the next leg of its growth is going to be cross-chain connectivity at enterprise scale, and with the regulatory compliance features that financial institutions and other major enterprises need. That's why its past experiments with Swift, the global banking cooperative and legacy messaging system for international money transfers, still matter as a proof point for Chainlink's ability to efficiently route tokenized value across multiple chains.

Another important trend to watch is the data streams it offers. Chainlink recently expanded its rapid, market-data product beyond crypto into U.S. equities and exchange-traded funds, which are key ingredients for on-chain funds, structured products, and for managing tokenized real-world assets. In other words, Chainlink is expanding to offer the full spectrum of data traditional finance depends on.

So don't be afraid to buy this coin and hold it for the next five years or more. It's executing extremely well within its target arena, getting great feedback from the market for its services, and providing a tidy return to its investors as well, and there's not much reason to believe that any of those things are about to change within the next couple of years.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chainlink. The Motley Fool has a disclosure policy.