Cardano (CCC:ADA-USD) is set to begin moving higher as its related cryptocurrency, Ethereum (CCC:ETH-USD) recovers. This is because Cardano is known as a third-generation crypto (following Bitcoin (CCC:BTC-USD) and Ethereum) designed to directly compete with Ethereum. As a result, investors tend to push Cardano up when Ethereum rises, and vice versa.
In the past several months Cardano has been in a slump. As of July 10, Cardano is at around $1.33, after a May 15 peak of $2.4618. That is a loss of $1.0868.
This means it has dropped 45% from its former peak. If Cardano can recover half of this fall (i.e., 54.34 cents), that means there’s potential upside of 41% (i.e., $0.5434 / $1.33 = 0.409). And there is every reason to believe that this could happen, especially if Ethereum recovers.
For one, Cardano has already had a great return this year. It ended last year at just 17.4 cents per ADA token. So that means it is still up $1.156, or 564% (i.e., $1.156/0.174 -1 = 5.64). It is one of the best-performing cryptos in 2021.
In addition, this performance also coincides with Ethereum’s moves up. As of July 10, Ethereum is at $2,096.82. It ended last year at $730.37. So that means its 2021 performance is up 187% (i.e., $2,097/$730 -1 = 1.87).
That means that Cardano has outperformed Ethereum by 3 times (i.e., 564%/187% = 3). So I expect that once Ethereum begins to recover it will move Cardano substantially higher. The “delta” or change in upside is greater than 1.0, implying that ADA tokens will outperform ETH token prices.
Where This Leaves ADA Now
The goal of Cardano as a decentralized blockchain platform is to allow smart contracts to run much faster and smoother. These are essentially software-coded apps built on a blockchain platform where no company holds the data provided to the app. The decentralized blockchain keeps the information. So they are called Dapps (decentralized applications).
Ethereum is ahead of Cardano in that it already has many smart contracts applications, as Dapps or DeFi (decentralized finance) apps. Some recent estimates are that there are 5.42 million ETH tokens locked up in one Ethereum staking contract alone. This represents over $11.36 billion in value just for this contract. Cardano is behind the curve. Once its blockchain accepts smart contracts, it could gain a significant market share.
Cardano is now very close to rolling out its next phase of software development called the Alonzo testnet. This rollout is actually the last part of the third phase of its development known as the Goguen phase. That is when it will issue smart contracts and native blockchains. (The Goguen phase is named after computer scientist Joseph Goguen.)
The Alonzo introduction of smart contracts is expected to start in August 2021. This should also help with the popularity of the ADA token since it will allow Cardano blockchains to compete against Ethereum’s smart contracts.
Cardano is laying the groundwork for a major push into smart contracts. For example, recently the Cardano Foundation, based in Switzerland, revealed its five-year game plan. It seeks to target banks and Fortune 500 companies to introduce them to the benefits of Cardano’s blockchain system vs. Ethereum.
It wants 50 banks to allow ADA tokens to be converted into local currency and vice versa. This will expose the legacy financial institutions to the benefits of blockchain technology.
What to Do With Cardano Crypto Now
On March 19, Coinbase (NASDAQ:COIN), the largest crypto exchange, began to allow Cardano’s ADA tokens to trade on its exchange. In addition, recently Webull, a commission-free brokerage firm like Robinhood, began to allow Cardano to be traded there. Since Robinhood uses the same clearing agent as Webull, they may be open to allowing ADA to trade there soon as well. Cardano can also be bought on Binance US and other exchanges, so it is easily bought and sold.
As a result of its open access to investors, Cardano, the fifth largest crypto by market capitalization ($42.55 billion) should do well. It has a good chance of rebounding this year once Ethereum and Bitcoin begin to recover.
On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum but not any other security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.