Why Chainlink Price Faces More Pain Amid Overvaluation Risks

Chainlink price is in a precarious position as price action got rejected at the $12.50 mark. Now, LINK risks dropping 48% if the market conditions do not change because the recent price rejection completed a multi-month bearish reversal pattern. On-chain metrics support a heavy crash ahead for the Oracle service provider unless general market conditions change. The price of LINK dropped by 2% over the last 24 hours to trade at $11.18.

Chainlink Price Hints Drop on Risks of Overvaluation

Data from Santiment shows the Chainlink Network Value to Transactions (NVT) ratio hit a 3-year high on August 29. A high NVT ratio suggests that the market value of LINK is high relative to the amount of transaction activity on its network, which can be interpreted as the asset being overvalued.

Additionally, the Chainlink Price-Daily Active Addresses (DAA) divergence hit a one-month low at -59%, which indicates that the price has been moving in the opposite direction of its daily active addresses.

While LINK price rose from early August, the number of unique addresses interacting with the crypto asset remained relatively flat, signaling a weakening market sentiment and reduced interest in the asset.

Further, the LINK daily profit ratio has been dropping for the past week and is currently at 0.66. This means that for every LINK transaction that ends in a loss, 0.66 transactions are completed in profit, which is less than one, and hence, there is a net loss.

This is a bearish signal because the lowering profitability might lead to reduced confidence among investors, potentially causing them to sell off their holdings, which can drive the Chainlink price down.

Nevertheless, investor sentiment around Chainlink remains positive as the project has completed huge partnerships, including the latest one with Sony’s new blockchain, Soneium.

LINK Price Analysis: All Eyes On $6

A deep assessment of Chainlink price action on the charts further supports the on-chain analysis. The daily LINK chart reveals a multi-month head-and-shoulders pattern that breached the neckline in early August retested recently and was rejected.

This is worrisome for LINK investors because:

1. A head and shoulders pattern signals a reversal from a bullish to a bearish trend.
2. Given that the price has broken below the neckline, retested, and got rejected, LINK price is likely to fall to $3.66, and with a little cushioning, $6.

Unless the market changes, the prevailing Chainlink price prediction is bearish.

Conversely, if the LINK price surges and maintains above the neckline, it may signal market strength and turn Chainlink bullish. LINK would surge to $14 and $18, where it would find the next major resistance levels.