The past six weeks have been undeniably harsh for cryptocurrencies that carry high risk and potential high rewards. After a “flash crash” in the crypto market in early August, many of these digital coins have plummeted by 30% to 50% this year.
The essential task is to discern which of these cryptocurrencies have been unjustly devalued. Ideally, some should currently be trading at enticing valuations. Consequently, I propose Chainlink (1.26%) as a notably undervalued cryptocurrency.
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What Happened to Chainlink?
At first glance, the outlook for Chainlink seems grim. The cryptocurrency has fallen 30% this year. July brought hope when Chainlink’s price reached $15, but it took a steep dive in August, dropping to just $9.
This partly explains why Chainlink is trading 80% below its all-time high of $52 from May 2021. However, the August “flash crash” isn’t solely to blame. Fundamentally, something appears amiss with Chainlink, which has struggled to attract investor interest for over two years, despite being the leading data oracle blockchain network globally.
This situation likely stems from the widespread backlash against decentralized finance (DeFi) following the 2022 crypto market crash. Some of the most significant failures during the crash, such as the dramatic downfall of the FTX cryptocurrency exchange and the Terra stablecoin’s collapse, were due to DeFi malfunctions.
Chainlink’s main function, which involves providing real-world data to smart contracts, makes it vulnerable to DeFi’s fluctuations, as smart contracts form the foundation of decentralized finance. Other prominent DeFi entities have also suffered significant losses over the past three years. For instance, Uniswap (-1.41%) has declined 85% from its peak in 2021.
Chainlink requires a refreshed investment thesis. If it develops one, it might regain momentum with crypto investors.
The Asset Tokenization Trend
This is where a significant financial trend, known as real-world asset tokenization (RWA), becomes relevant. In essence, asset tokenization entails transferring traditional financial assets, such as stocks and bonds, to the blockchain. This process could introduce operational efficiencies and substantially boost liquidity for traditionally illiquid assets, like real estate.
The Boston Consulting Group projects that real-world asset tokenization could present a $16 trillion market opportunity by 2030. A more cautious estimate from McKinsey & Co. suggests a $2 trillion opportunity.
As a result, major Wall Street players are endorsing this trend. For example, BlackRock (0.91%) CEO Larry Fink believes real-world asset tokenization could fundamentally alter the financial landscape. He is more optimistic about asset tokenization than cryptocurrency exchange-traded funds (ETFs).
The promising aspect here is that Chainlink could play a pivotal role in the long-term development of real-world asset tokenization. It has established itself as a thought leader in this domain and has developed a new platform for transferring tokenized assets across multiple blockchains. Additionally, Chainlink has already collaborated with notable financial entities, including the Swift payment network and the Depository Trust and Clearing Corp. (DTCC), on proof-of-concept projects.
By performing some basic calculations, it’s evident why Chainlink might be significantly undervalued. If Chainlink captures just 1% of a $1 trillion market opportunity, that’s $10 billion. Currently, Chainlink’s market cap is $6.5 billion, presenting a chance for a 250% increase in value if it becomes even a minor player in this sector.
Consider the Long-Term Potential of Chainlink
Real-world asset tokenization is a financial trend that might take years, if not decades, to fully unfold. However, given the support it has from Wall Street, it’s almost certain to materialize in some form. The trend will likely begin with financial products, such as mutual funds and bonds, which are most suitable for conversion into digital tokens.
Keep in mind that the cryptocurrency market remains volatile and risky. Due diligence is crucial, especially with a trend as new as asset tokenization. Despite Chainlink’s recent market struggles, its potential is promising. In a few years, you might regret not investing in this undervalued cryptocurrency.
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