Chainlink (LINK) Faces Potential Drawdown as Investor Optimism Wanes

• LINK’s price faces potential drawdown as investor optimism wanes.
• NVT ratio at 4-year, 8-month high, suggesting overvaluation relative to network activity.
• Price could drop to $10.79 support, with $10.00 as worst-case scenario; $13.00 breach would invalidate bearish outlook.

Chainlink (LINK) has buoyed its price in recent weeks begins to lift. This shift in investor sentiment, coupled with concerns about the network’s valuation relative to its activity, could potentially trigger a price drawdown.

Since late July, LINK holders have maintained a bullish stance, buffering the cryptocurrency against substantial losses and even driving its price upwards in mid-August.

However, recent data suggests this strong optimism is beginning to erode. Despite recent price increases, the weighted sentiment for LINK has been on a consistent downward trajectory, though it currently remains above the neutral zero line.

Chainlink metrics show overvalued status

A key metric raising red flags is the Network Value to Transactions (NVT) ratio, which has soared to levels not seen since January 2020 – a four-year and eight-month high.

This elevated NVT ratio suggests that LINK’s current valuation may have outpaced its underlying network activity, potentially indicating an overvalued asset. Such a disconnect between price and fundamentals often precedes market corrections as investors reassess their positions.

From a technical perspective, LINK’s price action revolves around the critical $12.35 level. Currently trading at $11.6, Chainlink is attempting to flip this resistance into support. The $12.35 mark has served as a major bounce-back point in recent trading, making a breakthrough crucial for sustaining LINK’s upward momentum.

However, the confluence of waning sentiment and valuation concerns paints a potentially bearish picture. Should these factors continue to weigh on investor confidence, LINK could experience a retracement to the local support floor at $10.79.

While a drop below this level seems unlikely based on current data, adverse market conditions could potentially push the price towards the psychologically significant $10.00 mark.