Invest in Cardano, But Only If You’re in It for the Long Haul

As crypto investors wait for its Alonzo upgrades to complete, what’s the best move with Cardano (CCC:ADA-USD)? Once said upgrades (which include smart contract capabilities) wrap up, this altcoin’s blockchain will become an even stronger competitor to the name that dominates the DeFi (decentralized finance) space, Ethereum (CCC:ETH-USD).

A photo of a phone displaying the Cardano logo and some information about the blockchain.
Source: Grey82 / Shutterstock.com

This increasing level of utility bodes well for the price of its coin over the long term. But that’s not to say the near-term won’t be volatile. With most of its outstanding coins held by short-term-minded traders, impatience could get the better of them.

Ethereum has its own forthcoming upgrades. Rival altcoins are also increasing their functionality. Speculators may start to lose confidence in this particular coin’s merits as an “Ethereum killer.” ADA prices could experience another pullback, even as it remains below its highs following last month’s crypto market crash.

So with the risk of another big decline, should you stay away? Short-term traders shouldn’t bank on it popping just because its upgrades are about to wrap up. But if you’re buying this as a long-term bet on the growth of this coin’s blockchain, today’s prices could look more than reasonable in hindsight.

Cardano and Its Pending Upgrades

Currently in the testing phase, the Alonzo updates will go live in late July or early August. These updates stand to change the game for its network, because they enable the use of smart contracts on its blockchain. This alone won’t make it an “Ethereum killer.”

But it could enable the platform to remain the front-runner among the scores of up-and-coming altcoins trying to give the market leader a run for its money. I’m talking about Polkadot (CCC:DOT-USD), Polygon (CCC:MATIC-USD), Solana (CCC:SOL-USD), and many others. As seen from its higher market capitalization (slightly under $50 billion), the market remains confident this is the name that stands to gain the most ground.

Yet even with the upgrades, it’s not guaranteed this sentiment will hold. Cardano isn’t the only network “leveling up” its utility. The aforementioned altcoins have upgrades in motion as well. Not only that, the decentralized finance (DeFi) leader itself has its pending upgrades, which could help it stay at the top.

This doesn’t destroy the long-term bull case for ADA. But, it could leave its investors, most of which have only bought it within the past year, skittish. This may result in some near-term volatility.

The Other Coins Aren’t Resting on Their Laurels

2021 has seen major rotation out of established coins like Bitcoin (CCC:BTC-USD), and into promising altcoins like Cardano. This is why its coin price surged more than ten-fold between January through early May and why it remained fairly resilient during and after the May meltdown. But the flip-side to this is that the vast majority of ADA owners haven’t owned it for that long. About 92% of its owners have held it for less than a year. Nearly a third have held it for less than a month.

What’s bad about this setup? It leaves short-term traders in the driver’s seat. For now, as they remain confident that the Alonzo upgrades will be a game-changer, this could have a positive rather than negative effect on Cardano prices. But it may not take much to turn these short-term holders of it into fair-weather investors. If Ethereum’s own upcoming upgrades inspire confidence that will prevail against the rising competition, this could ding confidence in this coin’s prospects.

That’s not all. Altcoin rivals may continue to improve their own utility. This could also scare off this coin’s short-term investors. And, with Bitcoin planning a major upgrade later this year, renewed confidence in the crypto that started it all could negatively affect investor sentiment for ADA as well.

In short, while the future remains bright for Cardano, it’s far from guaranteed that prices will move higher following the Alonzo upgrades.

Long-Term Bull Case for Cardano

We could see one of two outcomes play out in the coming months for ADA prices. Either investors become more bullish after the upgrades go live and prices surge from today’s levels (a bit under $1.50) back up towards its highs (around $2.46). Or, as rival coins become stronger and the established coins maintain their lead, recent investors head for the exits, resulting in another pullback.

Weighing the positives against the negatives, what’s the takeaway with Cardano? This may not work as a short-term trade. But for more long-term minded investors who are willing to ride out possible choppy waters, it remains worth it to hold on tight.

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On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


Article printed from InvestorPlace Media, https://investorplace.com/2021/06/cardano-long-term-prospects-remain-solid-but-watch-out-for-volatility/.

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