Cardano Trading Volume Falloff Could Signal a Corrective Winter Ahead

Immediacy bias is a powerful drug. Per scientific research, people “tend to perceive immediate emotions as more intense than previous emotions.” Frankly, it’s not a shocking takeaway as it’s more common sense than anything. But because common sense isn’t so common in a heavily hyped asset like Cardano (CCC:ADA-USD), it’s sometimes best to eschew current analytical literature for prior ones.

A concept token for Cardano (ADA) with a trading chart in the background.
Source: Shutterstock

Because we’re in a landscape where Bitcoin (CCC:BTC-USD) is within a few thousand dollars of its all-time high, arguably most investment articles about cryptocurrencies in general will feature a bullish slant. And why should we expect any different? Given all the turmoil in the global economy and the markets, cryptos offer an enticing and viable alternative.

Additionally, Cardano is attractive for those just starting out in the investing game. While I wouldn’t recommend ADA coins as a starting point — you should really consider safer blue-chip and mid-tier stocks — they’re currently priced at a few cents above $2. Under the present market ethos, that’s sometimes all you need to justify a rush of sentiment.

Thus, it’s fair to point out that you may not be getting the most objective takes in Cardano or any other crypto during this euphoric phase. That’s why I found some of the past articles about Bitcoin so revealing.

In a December 2018 post from CoinDesk, a poll conducted by its Markets division asked respondents which indicator was the most important (outside of price). The majority answered volume at 39% while second place (at 29%) went to the relative strength indicator.

Coincidentally, citing this survey was self-serving as I’ve been pounding the table on using volume to gauge decentralized assets like Cardano. In summary, you want volume to confirm the reliability of a rally: higher price swings should align with rising volume levels.

Past Warnings for Cardano

The concept of using volume isn’t limited to Cardano or to cryptos as a whole. Rather, it’s been a mainstay of technical analysis. In the stock market, volume is one of the unassailable facts beyond historical price points. It provides color to the gyrations in equity valuations.

Interestingly, a March 2018 article in Fortune also brought up the volume issue. Here, investors were worried about a huge drop-off in Bitcoin volume supposedly confirming the plummeting of its price. In other words, declining volume appeared to suggest waning interest in the cryptocurrency. The article went on to state:

The transaction data may be bad news for Bitcoin bulls, according to Charles Morris, chief investment officer of Newscape Capital Group in London, who invests in cryptocurrencies. Trading and purchases on the Bitcoin network, which can be measured by metrics like transaction volume, is indicative of price direction, he said.

The concerns weren’t unfounded because later that year, Bitcoin would suffer a calamitous decline before eventually climbing back up to where it is today — $62,271. But if you had considered the implications behind the erosion of volume, you would have spared yourself much pain and been on the favorable end of a lifetime buying opportunity to boot.

When I look at Cardano today, I just can’t help but wonder if we’re on the verge of yet another corrective period. Volume was very elevated in spring and summer of this year when ADA surged to record levels. Since then, both price and volume have died down.

In addition, while the current rally in Bitcoin that began in late September is impressive, its volume levels are conspicuously lower than when the coin rallied to its all-time high earlier this year. As the 2018 Fortune article wondered, it seems market participants are slowly losing interest.

No Need for Extremes

Of course, we’re talking about cryptos so there’s no telling what Bitcoin, Cardano or any of the other 12,000-plus digital assets will do. Perhaps there will be one more hurrah before the sector invariably corrects again.

At the same time, you want to be smart and use logical reasoning here. If a rally is to be sustained, it requires the participation of the masses. Even a whale wouldn’t be comfortable driving up the market alone since he or she would need many, many people to dump the assets to.

But if there are fewer people willing to hold the bag, that necessarily means the price at which the masses are willing to hold said bags has to be lower than it is right now. That’s why volume is so important. It doesn’t just confirm bullish intent and viability but it also helps gauge downside risk.

With fewer people today willing to buy Cardano than there were several weeks ago, I’d tread very carefully.

On the date of publication, Josh Enomoto held a LONG position in ADA and BTC. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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