This Cryptocurrency May Be Down 73%, but It Has Explosive Long-Term Potential
Chainlink could be ready for a comeback, thanks to its growing role in two emerging trends in the blockchain world.
During the previous crypto bull market rally, Chainlink (LINK -3.55%) became an overnight sensation. From January 2020 to May 2021, Chainlink soared in value from $2 to $52. At that time, investors thought the cryptocurrency had the potential to disrupt the traditional financial system, thanks to its innovative blockchain technology.
That was then, this is now. As of this writing, Chainlink trades for just $14, and is typically an afterthought when investors think about which high-risk, high-upside cryptocurrencies should be in their portfolios. But don’t sleep on Chainlink. There are two big reasons why it might make a roaring comeback.
The asset tokenization trend
Chainlink is at the forefront of the asset tokenization trend, which is taking the financial world by storm. In simple terms, asset tokenization refers to the process of transforming real-world assets into digital assets on a blockchain. The current focus is on tokenizing large, complex, or illiquid real-world assets such as private equity and real estate. Representing these assets with secure blockchain tokens can provide enormous liquidity and operational efficiency benefits.
That might not sound like a game-changing idea to people who do not invest in these assets, but Wall Street is certainly sitting up and taking notice. BlackRock, the largest asset manager in the world, is one of the biggest names behind the asset tokenization trend. According to CEO Larry Fink, the coming asset tokenization trend is even bigger than the launch of the new spot Bitcoin ETFs.
Image source: Getty Images.
In fact, Chainlink thinks asset tokenization could be a $10 trillion market opportunity by 2030. Top-tier consulting firms agree, with the likes of Boston Consulting Group and McKinsey & Co. now projecting asset tokenization to be a multitrillion-dollar opportunity. If Chainlink can capture even a tiny sliver of this market opportunity, the connection could send its market valuation soaring.
The good news is that Chainlink continues to partner with some big names in the traditional financial world to make asset tokenization a reality. For example, Chainlink recently wrapped up an asset tokenization pilot project with UBS Asset Management and the Swift payment network, in order to show that it is possible to move tokenized assets back and forth between the worlds of crypto and traditional finance.
The artificial intelligence trend
Chainlink is a blockchain oracle, meaning that it provides real-time external data to blockchains. Typically, this is financial data, but it can include just about any kind of external data, such as weather data. During the previous crypto bull market rally, financial data from Chainlink was primarily used to power the smart contracts used for decentralized finance (DeFi).
The big idea now is to combine Chainlink’s blockchain oracle technology with artificial intelligence (AI), in order to come up with new real-world use cases. For example, one problem that Chainlink is attempting to address is known as data fragmentation. This refers to the problem of inaccurate and incomplete data within the financial services industry, especially when it comes to corporate actions such as mergers, dividends, and stock splits. It can be very expensive and time-consuming to validate and then provide that data.
That’s where Chainlink comes into the picture. As Chainlink describes in a new report (“Transforming Asset Servicing With AI, Oracles, and Blockchains”), it’s possible to use AI and blockchain technology to help clean up and standardize this data in a way that is much more efficient than is possible today. By some estimates, this is a trillion-dollar market opportunity.
But I think this is just the low-hanging fruit when it comes to AI and blockchain technology. As Chainlink described in an earlier 2023 study, there are potential applications that involve medicine, education, and logistics. Keep in mind, too, that one of the strategic advisors helping Chainlink achieve its plans for AI and blockchain technology is Eric Schmidt, former CEO and executive chairman of Alphabet‘s Google. So there’s plenty of intellectual firepower that Chainlink can deploy if it finds a good idea.
How much higher can Chainlink go?
The big question, of course, is just how long it will take for both of these big trends — asset tokenization and AI — to play out. It could take years, if not decades, to see any results. So if you’re thinking of investing in Chainlink, you need to take a very long-term view.
That being said, I’m bullish on Chainlink over the long haul. At a very minimum, Chainlink could regain its all-time high of $52 within the next few years. Based on today’s prices, that represents a very attractive 270% return on investment. If you missed Chainlink’s first bull market run, there may still be time to get in on the next.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Alphabet, Bitcoin, and Chainlink. The Motley Fool has a disclosure policy.