Chainlink (LINK) investors are cautioned against expecting a repeat of the token's previous cycle performance. Despite a recent pump fueled by U.S. policy announcements, LINK has struggled to match previous highs. Market indicators like NVT, MVRV, and NUPL reveal a divergence in sentiment and valuation compared to the 2020-21 bull run.
Chainlink investors shouldn't anticipate the token to replicate the performance witnessed in its previous cycle. Thus far, it has struggled to even approach those heights. LINK experienced a notable surge on Sunday, March 2nd, following the announcement of a U.S. strategic crypto reserve. This rally was further fueled by the U.S. President's confirmation of tariffs on Mexico and Canada, along with additional tariffs on Chinese imports.
The Network Value to Transactions (NVT) metric, which divides the market capitalization by the transferred on-chain volume in USD, provides insights into market valuation. A higher NVT suggests that the market capitalization is elevated relative to the volume transferred, indicating a potential overvaluation, akin to a high P/E ratio in stocks. In September 2024, the NVT reached its peak since January 2020, driven by a decline in on-chain volume to July 2023 lows. Subsequently, volume increased, leading to a downward trend in the NVT during the November-December price rally. Over the past two months, the NVT had begun trending southward, particularly as declining prices dampened enthusiasm for LINK and impacted user numbers. At the time of writing, the NVT chart had started to trend upwards again.The MVRV ratio offers a deeper understanding of market sentiment and provides a clearer picture of Chainlink's fair price. At press time, the MVRV ratio stood at 1.29, indicating that holders, on average, were at a decent profit. However, this MVRV was significantly lower than the levels observed in 2020 and 2021. Despite this, the altcoin market has experienced substantial dilution over the past four years. It's possible that LINK's MVRV may never reach the profit levels of 2020 because LINK bulls have been comparatively weaker. The NUPL, or the ratio of relative unrealized profits to relative unrealized losses, sheds light on investor sentiment. A high ratio suggests that more investors are in unrealized profits, indicating a greedy market. For Chainlink, the opposite has been true. The recent price decline has caused the ratio to tilt towards fearful sentiment. Its value of 0.18 was far from the 0.62 level recorded in December, demonstrating that unrealized profits have been eroded by the downtrend. This metric did not fall below 0.55 during the 2020-21 rally but has struggled to exceed this level over the past six months. This highlights the significant difference in LINK's performance between cycles. Perhaps, holders should consider taking profits more aggressively if the downtrend reverses in the coming months
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