A popular coin among blockchain advocates thanks to its myriad innovations, ADA really took on a life of its own this year when various celebrities backed it in earnest.
Further, Cardano delivered on its promises, climbing up the ladder to become second among altcoins only to mighty Ethereum (CCC:ETH-USD), the backbone of blockchain applications. Therefore, if you had the good sense (or were just plain lucky) to have invested in the coin at the tail end of last year, you’re quite the happy camper today.
Still, its prior good fortunes haven’t spared Cardano incredible bouts of choppiness. Following the steep correction in digital assets earlier this spring, ADA coins began slipping sharply into the second half of July. Of course, that was when cryptos found second wind, sending Cardano to a record high. But from late September until very recently, the digital asset appeared to languish in a sideways consolidation pattern.
Earlier, I mentioned that Cardano needs to bounce higher if it wants to keep pace with other coins and tokens. Frankly, ADA was becoming an eyesore and a distraction, moving aimlessly while Bitcoin surged to ridiculous peaks. But in the late hours of Nov. 8 leading into the early dawn of Nov. 9, ADA seemed to have found its mojo.
It’s a great time too because as CNN Business reported, both Bitcoin and Ethereum jumped to new records. Let’s face it, it wouldn’t be a great look if Cardano continued to move sideways as the benchmarks padded their valuations.
Still, ADA has lost steam, trading the No. 4 position among all cryptos by market capitalization with Solana (CCC:SOL-USD). Can you still trust Cardano or is it time to look for another altcoin?
Cardano and the Rest of the Crypto Complex Need a Reset
While the ridiculous rise of cryptos draws even more excitement to the sector, one can’t help but feel things might be getting a bit out of hand. According to data from Siblis Research, the total U.S. equity market value as of Sept. 30 is $48.6 trillion. Currently, the total market cap of all cryptos is nearly $2.94 trillion.
Therefore, at time of writing, the crypto complex represents 6% of all equity market value. Further, Cardano alone represents 2.56% of the burgeoning blockchain market. I think this is both the opportunity and the potential pitfall of ADA.
On one hand, the former No. 3 crypto has come a long way since it was one of the many undercards floating around in cyberspace. And at less than 3% share of all cryptos, it theoretically has a large total addressable market.
But on the other hand, Bitcoin and Ethereum presently make up 63% of the crypto complex. If their valuations collapse, it will almost surely take down the rest of the complex. While many advocates like to think that Cardano’s utility and applicability might be enough to justify an investment, the sad truth is that the undercard assets have not demonstrated prolonged independent price trajectories relative to BTC.
That’s an awkward way of saying that if Bitcoin tumbles, your altcoins will follow suit. And I do think it’s possible that BTC can falter because of institutional involvement. These big boys don’t care about blockchain integration; they’re just here to make a buck. And if they see evidence that BTC is about to print serious red ink, they will not hesitate to hit the sell button.
Unfortunately, this suggests that it doesn’t really matter what technical substance undergirds ADA coins. Once mass panic sets in, it’s difficult to stop the herd.
Cryptos Could Have Jumped on a False Premise
Recently, I came across a Wall Street Journal article that mentioned that according to the Federal Reserve, U.S. households added $13.5 trillion in wealth in the last year. That’s a staggering sum of money earned during a recession. In 2008, the Journal reminded us, U.S. households lost $8 trillion.
Of course, the main difference between then and now is government intervention. In one of the rare instances of political harmony, both Republicans and Democrats came together to distribute stimulus checks and bolster unemployment insurance. That might be the reason why the craziness in all capital markets exist; otherwise, we should infect ourselves with more coronaviruses to spark additional wealth creation!
However, another Journal article warned that the impact of the pandemic spiked corporate debt to $11 trillion. Essentially, as the piece noted, companies who took advantage of the cheap money may have only accomplished delaying a reckoning.
If such a reckoning does occur, you can bet that the outcome would be deflationary (i.e. fewer stable businesses). Under such a circumstance, I can’t imagine that cryptos or anything else will continue jumping higher.
Then again, who knows? All I can say is that you should approach this unique circumstance with extreme vigilance.
On the date of publication, Josh Enomoto held a LONG position in ADA, BTC and ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com 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.