Cardano Requires Maximum Trust in Your Technical Analysis

One of the most exciting alternative cryptocurrencies, Cardano (CCC:ADA-USD) easily invites itself among the top winners during this crypto rally.

Cardano (ADA) token with blue and orange digital background.
Source: Stanslavs / Shutterstock

Given the present fallout that might seem an odd statement, but sentiment was sky-high for ADA coins earlier this year.

Backed by a strong fundamental case and celebrity enthusiasm, this was once the third-biggest crypto by market capitalization.

I remember a time when Cardano was one of the literal penny stocks of the virtual currency complex. So to see it gain recognition from mainstream publications like Bloomberg is surreal. Alas, like any other speculative venture, the wind appears to have been knocked out of its sail. Along with other cryptos, ADA is struggling for traction.

Proponents will argue, though, that this is a great time to load up on the coins. For one thing, the devastation that rocked the global markets — caused by concerns regarding the Federal Reserve taking away the monetary punch bowl sooner than expected — may not be a longstanding bearish catalyst.

True, a combination of gradually removing monetary support along with rising interest rates would not be great for risk-on assets. And it doesn’t get much more risk on than Cardano and the entire crypto complex. At the same time, the Fed isn’t guaranteed to move ahead with its threats.

According to Nomura analysts, the global economy faces stagnation risks in 2022. While we’ve improved dramatically from the doldrums of 2020, our recovery efforts have hit some roadblocks.

Therefore, raising rates now might exacerbate present vulnerabilities.

That segues into a second point: the U.S. government may want to ensure that all Americans (not just rich folks) have recovered to a certain baseline. Making borrowing costs more expensive is probably not the most conducive methodology for achieving this result.

Cardano at a Crossroads

Interestingly, the will-it, won’t-it debate also reflects itself in the price chart for Cardano. As most other cryptos experienced, Cardano nosedived since approximately mid-November. As worries ripple over risk-on assets, the crypto coin continues to tumble.

Yet if there’s one small point of encouragement, it’s that Cardano has not “closed” below its July lows of this year, a time when it seemed the entire crypto complex was about to combust. Therefore, some hope exists among the faithful that ADA will bounce back from here on out.

Adding more evidence to the mix is that Cardano appears to be holding strong at $1.21. Sure, at a time-of-writing price of around $1.25, ADA is playing a dangerous game. Still, it’s possible that this could be the line in the sand. If enough bulls join in, this could be as low as the bears could take it.

However, it’s also worth pointing out that when Cardano fell to its aforementioned July bottom, it only briefly dipped below its 200-day moving average, a longer-term indicator of market health.

However, at the present crossroads, ADA has been trading below the 200 DMA consecutively since Nov. 21. So, we’re basically three weeks into sub-200 DMA trading, which is worrisome.

This weakness also points to a key vulnerability not just toward Cardano but all cryptos. Sure, fundamentally sound cryptos like ADA feature compelling narratives — in this case, a proof-of-stake protocol. But the virtual currency market doesn’t seem to care about any of that when panic sets in.

Moreover, digital asset investors seem to focus more on worldly, centralized matters, such as what the Fed is doing as opposed to what Estonian computer geniuses are ginning up. It’s weird.

Before Careful With Your Approach

I might get scorched for saying this but investors analyzing global market rumblings may be hypocritical here. I mean, the point of decentralization is in part to disassociate from the “evils” of centralization. So really, how amazing are decentralized protocols if the market value associated with them are tied to investor sentiment on central governmental issues?

That’s a philosophical question. For now, central banking monetary policy is weighing down cryptos, which means you ought to be super-careful with Cardano. Yes, raising rates will cause its own problems. But as a CNN op-ed stated, inflation is out of control.

At a certain point, it’s going to be impossible for regular folks who have no marketable talents — remember, learned skills can always be outsourced to developing nations — to live, let alone get ahead.

So be warned, the Fed might aggressively combat inflation. And that would be unpleasant news for cryptos in the interim.

On the date of publication, Josh Enomoto held a LONG position in ADA. 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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