- Cardano seems poised for a V-shaped recovery to $1.2 but fundamental factors say otherwise.
- The decreasing level of network activity and a high MVRV ratio could continue capping upward movement.
ADA, the native token of the Cardano blockchain, has recently cemented its position in the market among tokens that have the ability to escape the bearish traps and recover from the pits.
Following the downstream trip to $0.4, ADA focused on closing the gap to $1. However, due to the resistance at $0.7, its topside potential was down significantly. Here are a few deterrents that obstruct the recovery of ADA.
1. Whales Are Not Convinced ADA Is Poised For A Rally
Based on the supply distribution metric by Santiment, the number of addresses with tokens between 100,000 and 1 million stands at 20,300. This figure took a major hit from the peak of 26,400 in March. Note that this downward trend does not seem ready to change course and could be echoing the investors’ skepticism about the health of the cryptocurrency market in general.
As reported on Monday, Peter Brandt, who is a prominent author and a futures trader, said that Bitcoin may be headed to its fourth 80% retreat since 2011. Other analysts say that altcoins are likely to drop by 90% from their all-time highs. This is to say that, no matter how technically bullish Cardano’s price may look, it is still trading in unfavorable conditions.
The same negative trend is reflected among addresses holding between 10,000 and 100,000 ADA tokens that have fallen to 120,000 from April’s high of 127,600. If whales keep offloading their bags, the pressure mounting on Cardano’s price would limit the expected uplift beyond $1.
Cardano Supply Distribution
2. ADA Is Quickly Becoming Overvalued
The move from support at $0.4 to highs close to $0.7 saw the market value realized value (MVRV) recover from -35% to 11.55%. According to Santiment, this metric tracks the average profit or loss of all the holders of ADA using the price at the time they last moved.
In other words, an extremely negative ratio (i.e -35%), means a majority of holders would incur a loss if they sold at the current price. Therefore, this is interpreted as a call to buy. On the other hand, positive figures above the mean line (i.e 11.5%) infer that the token is essentially getting overvalued and that a correction is possibly on the horizon.
3. Low Network Activity
According to the 30-day moving average, the level of network activity on the Cardano blockchain has slumped considerably. Around 27,400 addresses are at the moment interacting with the protocol, compared to a six-month high of 286,400.
ADA Daily Active Addresses
The drop negatively affects the performance of Cardano’s price because generally, speculation for gains goes down. In other words, investors take a hands-off approach; thus, denying ADA of the momentum to sustain an uptrend.
ADA/USD Weekly Chart
Meanwhile, ADA’s long-term technical picture appeared positive amid a V-shaped recovery to $1.2. Due to the oversold conditions as outlined by the Stochastic RSI, buyers have the upper hand. For now, a break above $0.7 would go a long way to cement the bulls’ presence in the market and back the rally to $1 and $1.2.