Chainlink FUD Could Lead Towards Bottom Formation

On-chain data shows that Chainlink investors have been realizing significant losses recently, a sign that the price plunge has put fear into their minds.

Chainlink (CRYPTO: LINK) investors have shown their largest capitulation event of the year, according to data from on-chain analytics firm Santiment.

The indicator of relevance here is the "Network Realized Profit/Loss," which keeps track of the net amount of profit or loss that Chainlink traders are realizing right now.

The indicator works by going through the blockchain history of each coin sold to see what price it was moved at before this. If this previous price for any coin was less than the spot price it’s being transferred at now, then the coin’s sale is realizing some profit.

Similarly, transactions of coins of the opposite type would lead to loss realization instead. The indicator adds up these profits and losses for the entire network and then calculates their difference to find the net situation.

When the value of the Network Realized Profit/Loss is positive, it means the investors as a whole are realizing profits. On the other hand, the negative metric suggests that loss-taking is the dominant form of selling in the market.

The following chart shows the trend in the Chainlink Network Realized Profit/Loss over the past few months.

This significant loss-taking spree from the LINK traders has come as the cryptocurrency’s price has gone through a significant drawdown over the past few weeks. The coin is down almost 10% in the last seven days alone.

Given this timing, it would appear that these investors have been scared by the bearish price action so much that they have decided to exit the market at a loss.

In the same chart, the analytics firm has also attached the data for another metric, the Age Consumed, which keeps track of whether dormant coins are moving.

It would seem like this indicator also spiked alongside the loss-taking from the investors, implying that even some holders previously sitting tight have been shaken out by the price plunge.

This FUD in the market can benefit Chainlink, as historically, the asset has been more likely to bottom out when fear is ripe among the investors. As Santiment highlighted in the graph, a red spike in the indicator also proved bullish for LINK in April.

LINK Price Action: Chainlink is trading around $12.8 at the time of writing on Wednesday, which marks a decrease of 3.11% over the past 24 hours and a rise of 1.8% over the past 7 days.