Despite all the hoopla surrounding Bitcoin (BTC +0.80%) and the new spot Bitcoin ETFs, the overall crypto market has been trading flat to down for much of the year. In fact, if you take a look at the top 20 cryptocurrencies by market cap, there is only one that's up more than 20% for the year.
Most likely, the name of that crypto will surprise you. It's Chainlink (LINK +1.23%), now up 21% in 2024. On the strength of that recent performance, Chainlink has now edged out Dogecoin (DOGE +1.06%) to become the #10 cryptocurrency by market cap. At a price of just under $20 per token, Chainlink is close to hitting a two-year high. So is this overlooked cryptocurrency now worthy of a place in your portfolio?
A new catalyst for Chainlink?
First, let's look at why Chainlink has been soaring of late. While it's possible to point to several short-term technical factors pushing Chainlink higher, the token may finally have a new long-term catalyst in place.
That catalyst is real-world asset tokenization, or RWA tokenization. That's a mouthful, to be sure, but it has the potential to become one of the most important trends powering the blockchain space for years to come.
Image source: Getty Images.
Simply stated, RWA tokenization refers to the process of transforming traditional assets (such as stocks and bonds) into digital assets that live on the blockchain. This is now one of the "big ideas" on Wall Street, and it has been promoted by the likes of Larry Fink, the CEO of investment juggernaut BlackRock (BLK +0.00%). At the same time, Coinbase Global (COIN 0.59%) has been taking early steps to see how these tokenized assets might be added to its crypto trading platform. According to the Boston Consulting Group (BCG), asset tokenization could be a $16 trillion market opportunity by 2030.
So the big question becomes: Which cryptocurrencies are going to be at the center of that trend? According to a recent report from K33 Research, the "safest bet" right now is Chainlink. That's because Chainlink is a blockchain oracle network, with the primary purpose of supplying real-world data to blockchain smart contracts. And what do financial assets need to be priced correctly? Lots of real-world data. That's why Chainlink fits so nicely into the overall asset tokenization narrative.
Déjà vu all over again?
While this sounds like the makings of a fantastic investment thesis, my only concern is that we've seen this story before with Chainlink. During the last crypto bull market rally, in 2020 through 2021, Chainlink was at the very center of the decentralized finance (DeFi) trend. Since smart contracts are one of the cornerstones of DeFi, and since Chainlink supplies data to smart contracts, it only made sense that Chainlink would ultimately soar in value as the DeFi narrative gained steam.
CRYPTO: LINK
Key Data Points
And indeed, Chainlink skyrocketed in value, from a price of $5 in March 2020 to a price of over $50 in May 2021. That's a tenfold return on investment in just over a year! But the price eventually collapsed to below $10, and traded there until last October (when the K33 Research report came out).
Where does Chainlink fit in your portfolio?
For that reason, I'm not recommending Chainlink as the first crypto in your portfolio. It's simply too risky. But there is a potential role for Chainlink in terms of overall portfolio diversification. As we're seeing now, Chainlink is a rare crypto that can zig while the rest of the crypto market zags.
Moreover, if the asset tokenization trend takes off, then Chainlink could provide enormous value to patient long-term investors. There's something very exciting about getting in early on a trend that could be worth $16 trillion. That being said, keep your expectations for Chainlink in check and maintain a long-term outlook.
For now, Chainlink may be too risky and speculative for most investors. But it has certainly earned a place on my investment radar. If the asset tokenization trend really does take off, then Chainlink could soar well beyond its all-time high of $53.
