Cardano Has Solid Fundamentals, But Watch Out for More Volatility

Trending higher after falling to around $1 per coin, Cardano (CCC:ADA-USD) may once again be trying to bounce back. As you may recall, this altcoin had a short-lived comeback attempt last month when it spiked to the $1.50 level. But with the latest volatility in late January, brought upon by growing concerns over interest rate hikes? ADA took a sharp plunge, to levels not seen since the crypto market bottomed out last July. While its fundamentals continue to get stronger, market conditions are making another breakout difficult.

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

In fact, if more rate-hike or increased U.S. crypto regulation news comes about, ADA may even be at risk of falling back below $1. So, what’s the best move with this potential Ethereum (CCC:ETH-USD) killer today?

Like I’ve discussed before, I wouldn’t look at Cardano as a great near-term trading opportunity. Instead, it’s best for long-term investors who think crypto will not be derailed anytime soon and that the coin’s usage will gain critical mass.

All in all, there are many contenders trying to grab a large share of the decentralized finance (DeFi) market. But ADA is still one of the stronger names around. Here’s what you should know.

The Latest News with Cardano

Before getting into the driver behind its recent drop, let’s take a look at some of Cardano’s recent developments. If you check out the headlines, it seems clear that this name is only getting stronger.

When I say stronger, I’m referring to both its blockchain and the strength of its popularity among crypto enthusiasts. For instance, when it comes to its network, the Hydra scaling project is moving along nicely. Once implemented, Hydra could increase its transaction speeds to one million per second. That’s a number even Solana (CCC:SOL-USD) can’t match.

Further, in terms of the coin’s popularity, check out the latest active wallet numbers. Over 3 million now hold ADA. This could continue to rise as improvements to its network attract more DeFi projects from developers.

These bits of news just scratch the surface of ADA’s increasing functionality and utility. They are also solid examples of why Cardano — underappreciated relative to other “Ethereum killers” — is one of the best names to hold for the long haul if you’re bullish on crypto.

Of course, it’s not all sunny, however. Many challenges still lie ahead for this alternative asset class.

Why ADA and Others Could Experience Another Selloff

It may seem as if market volatility has calmed down for now in the crypto space. For instance, Cardano has been moving slightly higher so far this month. Bitcoin (CCC:BTC-USD) has also moved back above $40,000 per coin while Ethereum is back above $3,000 per coin. But is the crypto bear market over? Not necessarily.

At present, the market has calmed down. The latest headlines suggest the U.S. Federal Reserve isn’t going to kick off rate hikes with a “bang.” Concerns about there being more than three hikes this year have dissipated as well.

Still, with the Fed keeping its options open, I wouldn’t rule out a more aggressive response. This could mean a further pullback in crypto prices. Higher rates will further strengthen the U.S. dollar. It will also make riskier investment vehicles less appealing.

Atop this market-related risk for both ADA and other cryptos is the risk of increased regulation. President Joe Biden plans to release an Executive Order on crypto regulation soon. The U.S. Securities and Exchange Commission (SEC) also just released a 654-page plan that could give it more power to regulate crypto exchanges and DeFi protocols.

You could make an argument for either side of the “will regulation destroy crypto?” debate. Yet, chances are that news of regulation will ultimately cause a negative response from the crypto market.

It’s the Same Story for ADA

There have been some changes since I last wrote about this coin, but little has changed with the overall Cardano story. In terms of fundamentals,  ADA and its network continue to strengthen.

Its next big upgrade, Hydra, could improve transaction speed in a big way. In turn, this could attract more developers and applications to its platform and increase the usage of its coin.

Still, even with its long-term positives, rate-hike and regulatory headwinds could keep putting pressure on ADA in the near-term. Keep that in mind if you decide to jump into Cardano today.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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