Cardano Swings Higher but Shows Weak Sentiment Indicators

With yet another sharp rise in the cryptocurrency sector, digital assets have once again proven to be the Periplaneta americana of the investing universe. Otherwise known as the common cockroach, no matter how many times you smash the living daylights of these things, they keep getting up. Case in point? Cardano (CCC:ADA-USD), which this morning extended a seven-day gain to near 11%.

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

Before the impulse to write an angry email hits your fingertips, please hear me out. When I compare cryptos to cockroaches, I mean that in the best way possible. If you’ve ever dealt with these things, you know that the only way to kill them is to drown them in poison. Even then, it takes a while for them to expire. In the meantime, its death throes may inspire sympathy.

I can’t help but note parallels with Cardano and so many other popular cryptos. After tumbling throughout the late latter half of 2021 (Cardano began correcting in September while other cryptos started falling in November), it appeared that the bottom had finally given out on this presumably overinflated market.

For one thing, consumer prices soared through the roof, inspiring the Federal Reserve to pivot its monetary policy from a dovish, accommodative strategy to one that’s much more aggressively hawkish. In response, investors rotated out of risk-on assets to names that featured historical stability and reliability.

Then, you have other pressing concerns such as Russia possibly making moves to invade Ukraine. On the other side of the world, China has been making aggressive overtures of unilateral re-unification with Taiwan. Both nations, per The New York Times, are watching the Ukraine crisis.

If the U.S. shows any kind of weakness, Taiwan could go next. And that would be a gamechanger, not just for Cardano but the rest of the world.

Stay Cool with Cardano

Considering all of the above, the ability for ADA coins to rise higher from this muck is very impressive. Fundamentally (at least in my view), there’s every reason for Cardano and the broader crypto complex to plummet. If anything, virtual currencies have had a phenomenal run. It’s time now to cool this bad boy off for the next big run up.

Still, here we are. The benchmark digital assets have taken off, bringing the rest of the complex with them. At the time of writing, the global market capitalization for all cryptos is a hair below $2 trillion, a 5% increase over the past 24 hours.

Is it game on? Well, you might want to consider the bigger picture.

According to some analysts covering the virtual currency space, the rise in the sector could be due to technical dynamics as opposed to a fundamental shift. That last bit caught my attention because the fundamentals really haven’t changed. If anything, they’ve gotten worse. For instance, President Biden just advised that Americans should leave Ukraine.

I don’t think a Russian invasion of a sovereign country is cause for higher prices in cryptocurrencies but maybe that’s just me.

But for Cardano specifically, I can’t help but feel concerned. Against competing coins and tokens, ADA features some of the weakest technical signals. For instance, its declining 50-day moving average has consistently acted as a resistance barrier since October of last year. Even as I’m writing this, ADA is having difficulties breaking above the 50 DMA.


Click to Enlarge
Source: TradingView/CoinMarketCap

Now, the common criticism about technical analysis is that it’s a bunch of hocus pocus. Maybe. But how else are we supposed to gauge Cardano than market sentiment? The crypto sector doesn’t operate like your typical publicly traded company.

The Timing is Off Putting

We all know that cryptos are volatile, that is has high beta. Arguably, that’s the charm about virtual currencies. You can accrue massive amounts of alpha if you time the dynamics associated with the high beta correctly.

But you can’t have your cake and eat it too. If cryptos have high beta, that means they’re volatile to the upside and the downside. After so many blistering performances over the trailing year, we need devastating collapses to flush out the toxic speculation that has been built in the sector.

So for cryptos to fully recover within three months or so seems absurd, like a perpetual motion machine. Until I see strong confirmation of a sustainable recovery, I’m going to view the latest crypto rally with a healthy dose of skepticism.

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 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.


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