Cardano’s Downward Spiral May Be Over as It Appears to Reach a Trough

Cardano (CCC:ADA-USD) may finally be coming out of its potential death spiral from the last several months. ADA reach a peak of $2.96 per ADA token on Sept. 2. At one point on Dec. 17, it got down to a low of about $1.20 per ADA crypto token. That represents a peak-to-trough decline of 59.5%. But as of Dec. 22, it’s slowly rebounding and was at $1.34 as of mid-day.

Cardano (ADA) token with blue and orange digital background.

Source: Stanslavs / Shutterstock

This represents a nice rebound from its lows and still leaves Cardano with a market capitalization of $44.7 billion. It also gives it a rank as the 7th largest cryptocurrency measured by CoinMarketCap.

Moreover, we can’t feel too bad for those who bought Cardano at the end of last year. That is because on Dec. 31, it was trading for just 17.5 cents per token.

That means even if they held the crypto through all the ups and downs, they would still have a huge return on investment (ROI). For example, ADA is now 7.66 times this year-end price, or a gain of 666% for those investors.

Year-End Selling May Be Abating

As I pointed out in a previous article, cryptocurrencies are apparently not yet subject to the wash-sale rules applied to “securities” like stocks and bonds. This IRS rule states that you cannot get generate a tax-related loss if you buy back a sold loss-making security unless you wait 31 days to buy it back.

The reason is cryptocurrencies, according to Kiplinger magazine, are still considered just property — not securities.

For example, you can buy a foreign currency one day and sell it the next and generate a tax loss. You can later that day rebuy it (with a new cost basis), and you do not have to wait 31 days as you would with stocks and bonds.

This applies to any foreign currency since they are not considered securities by the IRS. And apparently the same applies to cryptos, just like Cardano.

As a result, people have been selling cryptocurrencies that have generated huge gains while also selling other loss-making securities or cryptos as an offset. Normally the selling would slow down during the last two weeks of the year, but since cryptos are not wash-sale securities, people have kept selling them.

Where This Leaves Cardano

Now, it seems the tax-loss-harvesting selling is abating somewhat with Cardano. At some point, ADA will return to its normal fundamental trading.

For example, one analyst cited by The Daily Hodl says that Cardano is now “oversold.” This is compared to its own historical volatility standards.

However, I have had concerns in my past articles about Cardano and its abilities as a cryptocurrency. For example, one of my worries is that Cardano’s smart contract upgrade has not done well.

So far, its Alonzo hard fork, or blockchain software upgrade, has not performed well. It has not yet attracted the development of a large number of new apps.

As a result, there are issues with the long-term value for Cardano — at least until its smart contract abilities attract more developers and use cases.

What to Do With Cardano Now

However, investors with a long-term view on ADA will see this as a bargain opportunity. This is especially true for those who believe its market cap size as well as its ability to attract developers and uses cases will cause demand for Cardano to rebound.

In fact, there is ample reason to believe this could occur given past recoveries that ADA has made. For example, last year Cardano peaked just below 15 cents in late July 2020 and later fell down to a low of about 8.2 cents by early September.

This represented a drop of almost 45% from peak to trough – similar to what has happened this year. By the end of 2020, it was back up to 17.5 cents as mentioned earlier. And, of course, we now know what happened this year. So most investors can likely expect a rebound in Cardano going forward.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this 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.


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