Cardano’s native token ADA experienced a significant setback in June when the United States Securities and Exchange Commission (SEC) categorized it as a security in its legal actions against Binance and Coinbase. This classification resulted in a 42.5% drop in ADA’s price, plunging it to a two-year low of $0.21 within a few days. Furthermore, the token faced additional selling pressure due to its delisting from U.S.-based trading apps Robinhood and eToro. However, despite these challenges, Cardano’s network has been making progress in decentralized finance (DeFi) activity after a scalability upgrade in May. Technical and on-chain analysis also indicates the potential for a positive recovery.
Cardano’s Progress and Challenges
Over the years, Cardano has faced criticism for delays and network updates. The founder of Cardano, Charles Hoskinson, admitted in an interview with Cointelegraph that these setbacks were due to “betting on the wrong technology and being a bit ambitious with the roadmap.” However, he also acknowledged that 85% of the initial roadmap had been completed. Despite these delays, Cardano’s network saw an increase in activity after the implementation of the long-awaited scalability upgrade called Hydra, launched in the first week of May 2023. The total fees paid on Cardano reached a one-year high following the upgrade before dropping due to the SEC’s lawsuit. Nevertheless, activity on the network has been consistently increasing in recent weeks.
The total ADA deposited in DeFi applications on Cardano has experienced a strong rise, surpassing its peak value during the 2021 bull market, according to DefiLlama data. Additionally, trading volumes on Cardano’s decentralized exchanges have significantly increased since the Hydra upgrade in May. Hydra is a layer-2 scaling solution designed to enhance the throughput and scalability of the Cardano blockchain by processing transactions on a sidechain.
A report from Jarvis Labs revealed that ADA is one of the most decentralized Layer-1 blockchains based on the Nakamoto coefficient, which measures the minimum number of entities controlling 33.33% of all staked coins in the network. This higher degree of decentralization can work in Cardano’s favor when determining its security status in the United States. The report stated that Cardano is “alive, kicking, and ready to throw down in the next bull run.”
On-chain analytics firm Santiment recorded a high amount of sales at lower prices in the first week of July as ADA’s price rebounded towards the $0.30 resistance level. The analysts at Santiment observed that the levels of profit-booking indicated oversold conditions, increasing the chances of a bounce-back.
The funding rate data for perpetual swap contracts from CoinGlass revealed that most traders held short positions on ADA, betting on a downturn following the regulatory crackdown. These massive sell-offs and negative sentiment could potentially lead to a contrarian price rally in the short to medium term.
Technical Analysis and Potential Recovery
From a technical standpoint, the ADA/USD pair has formed higher lows after hitting a bottom around $0.21 in June, indicating that buyers are purchasing the token during dips. A confirmation of the positive trend would occur if buyers successfully turn the horizontal resistance level at $0.30 into support.
Analyzing the ADA/BTC pair, there are signs of a potential bottom as its weekly relative strength index (RSI) indicator 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 pushing the price up, the pair could potentially see a 60% surge towards the 0.00001548 BTC support level.
Despite facing challenges such as the SEC lawsuit and delistings from U.S.-based trading apps, Cardano’s network continues to make progress. If the technical indicators continue to improve and are supported by on-chain growth, ADA could be on track for a positive recovery in the future.