Cardano’s native token, ADA, experienced a significant setback in early June when it was categorized as a security by the United States Securities and Exchange Commission (SEC) in their lawsuits against Binance and Coinbase. This led to a sharp decline in ADA’s price, dropping by 42.5% from $0.37 to a two-year low of $0.21 within a few days. Furthermore, the token faced additional selling pressure due to delistings on popular U.S.-based trading apps Robinhood and eToro. However, despite these challenges, Cardano’s network has been making progress in decentralized finance (DeFi) activity following a scalability upgrade in May.
Acknowledging Past Criticism
Cardano and its founder, Charles Hoskinson, have faced criticism in the past for delays and slow network updates. Hoskinson admits that these setbacks were due to betting on the wrong technology and being overly ambitious with the project’s roadmap. However, it is worth noting that 85% of the initial roadmap has been completed. Despite the setbacks, the network witnessed an increase in activity after implementing the highly anticipated scalability upgrade known as Hydra in May 2023. The total fees paid on Cardano reached a one-year high following the upgrade, demonstrating the potential of the network.
In recent weeks, Cardano has experienced consistent growth in DeFi activity. The total ADA deposited in DeFi applications on the network has risen significantly, reaching twice its peak value during the 2021 bull market, according to DefiLlama data. Additionally, decentralized exchanges on Cardano have seen a substantial increase in trading volumes since the implementation of the Hydra upgrade. Hydra, a layer-2 scaling solution, aims to enhance the throughput and scalability of the Cardano blockchain by processing transactions on a sidechain.
A report by Jarvis Labs highlighted Cardano’s high degree of decentralization, making it one of the most decentralized Layer 1 (L1) blockchains. The report utilized the Nakamoto coefficient, which measures the minimum number of entities required to collectively control 33.33% of all staked coins in the network. This high level of decentralization could potentially work in Cardano’s favor when determining its classification as a security in the United States. Pseudonymous analyst Kodi from Jarvis Labs emphasized that Cardano is far from dead and is prepared to thrive in the next bull run.
Market Sentiment and Technical Analysis
On-chain analytics firm Santiment observed a significant amount of sales at lower prices in early July as ADA’s price rebounded towards the $0.30 resistance level. These sales indicated oversold conditions and increased the likelihood of price bounces. CoinGlass’s funding rate data for perpetual swap contracts revealed that many traders held short positions on ADA, anticipating a decline following the regulatory crackdown. However, such pessimistic sentiment and massive sell-offs have the potential to trigger a contrarian price rally in the short to medium term.
From a technical standpoint, the ADA/USD pair has formed higher lows since reaching a bottom around $0.21 in June, suggesting that buyers are purchasing the token during dips. A confirmation of the positive trend would occur if buyers manage to turn the horizontal resistance level at $0.30 into a support level. Similarly, the ADA/BTC pair indicates signs of a potential bottom, as its weekly relative strength index (RSI) fell into oversold territory and the pair tested the long-term support and resistance level of 0.00000956 Bitcoin (BTC). If buyers are successful in their efforts, the pair could experience a price surge of up to 60% towards the 0.00001548 BTC support level.
A Path to Recovery
Despite the challenges posed by the SEC’s lawsuit and delistings, Cardano’s network continues to make progress. If the technicals continue to improve and are supported by on-chain growth, ADA could be on its way to a positive recovery in the future. With increased DeFi activity, the implementation of the Hydra upgrade, and its reputation for decentralization, Cardano has the potential to overcome these obstacles and regain its footing in the market.
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