ADA: Why Cardano Is Exploding Right Now

May 31, 2022 3:28 PM ETCardano USD (ADA-USD)52 Comments11 Likes

Summary

  • Cardano has rallied over 50% in the last few days.
  • This strong price rally is backed by increased activity on the blockchain.
  • However, I still think this is a fake-out, and we should see one more low.
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Thesis Summary

Cardano (ADA-USD) has been rallying strongly over the last few days and is outperforming other cryptos significantly. There are certainly some fundamental reasons behind this rally, but we can also point to evidence on the ADA chart that shows this could be just another fake-out.

Is the bottom in? My primary view is that it isn't, based on analysis of both the Bitcoin (BTC-USD) and ADA cycles, but we are very close, and I have been advising my followers to get in at these prices.

Recent Price Action

In my last article on Cardano, I talked about the upcoming update to the blockchain, Basho, and how this should be bullish for the price based on an analysis of previous upgrades. However, my expectation then was that the bottom wasn't in. Since I wrote that, ADA has indeed made a lower law, and is doing its best to prove that a reversal is taking place.

ADA price chart

ADA price chart (Author's work)

On May 12, Cardano reached the $0.4 price level, and then quickly reversed. During the following weeks, the price slowly ground down to $0.44. We could call this a retest of the bottom, though the price was still about 10% above its previous low. Since this retest took place, ADA has rallied over 50%, leaving investors, and myself wondering why.

Looking at the recent activity on the Cardano network, we can certainly find some evidence as to why this crypto has staged such a strong rally.

Why is Cardano Outperforming?

We have seen a strong uptick in activity on Cardano. This is obvious if we look at ADA's trading volume, which is up over 270% since yesterday. But what is driving this interest in ADA?

One key reason might be the increased activity in its DeFi ecosystem, and the launch of Iagon's cross-chain bridge. Since the launch of the Alonzo hard-fork, Cardano has smart-contract capabilities, and over 94 apps have launched on the blockchain.

Now, if we look at Total Value Locked on ADA, we can also see a significant uptick.

TVL Cardano

TVL Cardano (DeFi Llama)

So the higher trading volume can be attributed to higher DeFi activity, and this, in turn, can be attributed to the launch of a new bridge between Ethereum and Cardano.

On May 25th, Iagon tweeted that the Beta version of their bridge was live. The bridge currently only supports USDC, but it will soon support ERC-20 tokens.

All in all, it seems like some money may be moving from Ethereum to Cardano.

Is the Bottom in?

With that said, I don't believe that the bottom is in. As I have shared with my subscribers, the current action from the bottom, even after this rally, doesn't look impulsive enough, and it doesn't match with my current Elliott wave count.

On top of that, we can also see that Cardano has a nasty habit of delivering powerful rallies to the upside, only to end up continuing its descent.

ADA Price Chart

ADA Price Chart (Author's work)

During this downtrend, we have seen a lot of aggressive moves up in ADA's price, only to end up seeing lower lows. In March, we saw ADA go from south of $0.80 to over $1.24 in a couple of weeks. This to me, looks like another fake-out.

On top of that, looking at ADA's upgrade cycle, which I discussed before, I still think we should see a few more weeks/months of weakness.

ADA Cycle

ADA Cycle (Author's work)

Basho is set to launch in late 2022/early 2023. That's still five or more months away. I'd expect the pre-upgrade rally to take off in earnest maybe 2-3 months prior. This would also line up very well with my recent analysis of the Bitcoin cycle, which suggests that Bitcoin's bear market should last about 2 more months.

Final Thoughts

All in all, I still believe we should see a bit lower in ADA. Even if we don't, there's no need to FOMO into it right now, as there should be plenty of chances to add. But be aware that, in a few months, you may be wishing you bought more.

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Disclosure: I/we have a beneficial long position in the shares of ADA-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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