Ranked the sixth-biggest cryptocurrency by market capitalization, Cardano (CCC:ADA-USD) is among the few promising and laser-focused blockchain projects that could offer a serious challenge to Ethereum (CCC:ETH-USD) lead as a smart contract platform of choice as Web 3.0 applications development gain growth momentum.
Despite a very promising future, Cardano’s price has come down 66% from its all-time high of $3.10 recorded in September as investor spirits were stirred up following an announced Alonzo upgrade that would pave way for the launch of several smart contracts and decentralized applications (dApps) on the blockchain.
Cardano Gains Traction to Challenge Ethereum Dominance
Although Ethereum has promised its new iteration ETH 2.0 that could significantly reduce the cost of transacting as the blockchain transitions from a power-hungry proof-of-work to a greener proof-of-stake validation mechanism, the timelines have been kicked forward, and this delay means Ethereum continues to suffer from high transaction (gas) fees.
Right from its original design, Cardano uses a “superior” proof-of-stake mechanism that consumes a fraction of the energy that an Ethereum or Bitcoin (CCC:BTC-USD) block gobbles up. And the growing dApps industry is taking notice.
In December, founder Charles Hoskinson revealed that more than 200 projects were in the pipeline, and we have seen some interesting launches so far this year, including a metaverse-focused GOmetalaunch.
The blockchain network hit the 1,000 smart-contracts milestone on Jan.27 .
This month, the Cardano community celebrated the achievement of another milestone — more than 3 million cryptocurrency wallets owned ADA, as of Feb. 3, 2022, up from about 2.5 million by Christmas of 2021 and 190,000 by Christmas of 2020.
The growth rate in the number of investors buying the cryptocurrency has been quite phenomenal, and there are no signs of slowing down, even as the coin’s price weakened lately.
It’s not just the number of holders that has increased, even their buying and selling activity is higher, too.
Daily Active Addresses Count on Cardano Holds High
The number of daily active addresses (DAA) — the number of addresses that actively sent or received a particular coin on its blockchain — is one fundamental metric that could show a trend in cryptocurrency coin-related demand. Rising DAA should mean increasing demand for a cryptocurrency unit.
Current data from cryptocurrency and blockchain fundamental research platform Sanbase shows that the cryptocurrency asset has shown impressive growth in this metric lately.
<em>Cardano Price vs. Daily Active Addresses: Jan. 3, 2020 – Feb. 3, 2022. Source: <a href="https://app.santiment.net/charts">Sanbase</a></em>
The number of daily active addresses trading ADA soared in 2021. For example, about 21,209 accounts traded the coin by Dec. 27, 2020, when its price was 15 cents. Daily active addresses count increased more than four-fold to 96,119 by Dec. 27, 2021. This was after peaking out at around 477,000 on Nov. 22 last year.
Although it launched back in 2017, the cryptocurrency has gained wider market adoption and became widely discovered by the crypto trading public in 2021. It holds that interest to this day.
Cardano Yields to Selling Pressure?
As the 2021 crypto rally came to life, the daily active address counts on Cardano increased exponentially.
Zooming into the coin’s daily active addresses data reveals some interesting emerging trends.
During the first nine months of 2021, ADA’s daily activity in investor accounts would increase as the coin’s price increased, and activity would decline as the coin’s price receded. Higher demand would correlate with higher prices. Activity and price were positively correlated.
This relationship has since been overturned.
Since November 2021, more investor accounts are becoming active as the coin’s price falls. In other words, more investors have decided to trade as prices went down.
Cardano Price vs Daily Active Addresses: Feb 3, 2021 – Feb 4, 2022. Source: Sanbase
Of note is the record spike in daily active addresses in November 2021 which coincided with a significant fall in the coin’s price. This trend repeated somewhat in January 2022 when ADA price fell from $1.59 on Jan. 17 to hit $1.03 by Jan. 22, 2022.
The decline was associated with a rise in daily active addresses from 135,000 to more than 175,000 midway through the plunge before the number settled at 135,000 again on Jan. 22 as the coin’s price bottomed.
Interpreting the Data
Investors have become jittery and they seem to dump Cardano whenever the capital markets tumble. Interestingly though, more and more investors are loading up on ADA during its meltdown.
New unique buyers are HODLing the crypto asset now, even as early investors decide to take some profits. Selling made sense as the Federal Reserve warns of rising interest rates and withdraws its liquidity support to the capital markets as it shrinks its balance sheet. The market is punishing high-risk assets, and investor sentiment has turned lukewarm to bearish on cryptos. Bitcoin fell 45% from a peak of $68,900 to around $38,000 at the time of writing.
However, long-term focused investors may read this as the best time to start accumulating the crypto asset, more so as developer activity remains strong on its network.
Cardano Retains Strong Development Activity
The number of developers and the time they commit to the blockchain is a critical indicator of a network’s future potential success and the ability to achieve its stated goals.
A Santiment report for 2021 placed Cardano as the leading project that attracted the highest number of committed developers active on any blockchain platform during the past year.
High developer commitment to creating working dApps and to polishing and upgrading the blockchain’s features makes it one of the most promising Web 3.0 investments one could make in 2022.
The blockchain has managed to retain high developer commitment over the past year, with a peak in committed hours recently recorded in January 2022.
More and more projects could be launched on the platform this year, and users of those apps will buy more coins to transact on decentralized platforms going forward.
The Bottom Line
Cardano is anti-inflationary. The total number of ADA coins issuable is capped at 45 billion. Currently, the total supply is 34.07 billion, and the number of actively circulating coins is around 33.58 billion (nearly 75% of maximum supply)
Increasing usability and growing demand for the blockchain’s native coin could mean one thing — sustained growth in its valuation. And the era for wider adoption of ADA is just getting started.
Buying the dips on Cardano could be one of the best plays for 2022.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions 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.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness”. You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.
