For most of February, Cardano (ADA-USD) was in freefall. After attempting to rebound earlier in the month, rate hike worries, alongside the breaking Russia/Ukraine conflict, resulted in a sharp move back below $1 per coin.
But now Russians are buying Bitcoin (BTC-USD), in response to the West’s economic sanctions. This in turn has resulted in a big move higher for cryptos all around. As a result, ADA-USD has made it back near the $1 mark. Some are also speculating that, after moving more in tandem with stocks, crypto could now become seen again as a “safe haven” alternative to stocks during tough times.
That said, before you dive back into this, or any other major coins/token, keep in mind that the “crypto winter” may not necessarily be over. The issues causing it in the first place remain and could soon come back into focus.
I still stand by my view that ADA is one of the better cryptos for buy-and-hold investors. In the coming years, it could move to a price well above what it trades for today. Yet, with the high chance you could pounce on it at a lower price sometime in the short-term, it may pay to wait.
Cardano and its Russia/Ukraine Rebound
Russia’s invasion of Ukraine has decimated the Russian equities market. In terms of the U.S. stock market, it has resulted in a moderate amount of volatility. But for the cryptocurrency market, it’s been a full-on roller coaster ride.
First, between Feb. 23 and Feb. 24, cryptos crashed. Bitcoin and Ethereum (ETH-USD) made sharp slides lower. In the case of Cardano? The altcoin experienced a more pronounced plunge, falling from around 95 cents per coin, to around 75 cents per coin. However, not too long after that, this digital asset class rebounded.
With the West imposing severe economic sanctions, confidence grew that the U.S. and its European allies would be able to effectively respond to this crisis. Then, as the Rubles-for-Bitcoin trade began, the rising tide lifted Cardano’s boat, enabling it to make its way back near $1 per coin today.
While this has been great news for those buying the dip, keep in mind this rebound may not last. The other factors that have sunk crypto since last November are still in play. These could help drive more volatility in the coming months.
Rate Hikes and Regulation
Given the aforementioned geopolitical crisis (despite sanctions) is far from over, it continues to dominate the headlines. This has taken off the front page something that has wreaked havoc on crypto and other types of “risk-on” assets: rate hikes.
But the Fed is still in motion with its plans to raise rates this month. This initial rate hike may already be baked into stock and crypto prices. The Russia/Ukraine crisis may also result in the Fed’s initial hike being just 25 basis points (0.25%) instead of 50 basis points (0.5%).
However, even as the central bank will likely stick with a reactive rather than proactive strategy to fight inflation with interest rate policy, it’s not a given that inflation will moderate later this year. If the opposite happens, and this once-deemed “transitory” issue stays persistent, the Fed may just well take more aggressive measures to tighten monetary policy. This will strengthen the U.S. Dollar, and put pressure on crypto regulation.
Besides the risk of rate hikes keeping Bitcoin, Ethereum, Cardano and the rest in “crypto winter” through the spring, summer and fall, don’t forget about the specter of greater U.S. regulation of crypto. What’s going on in Eastern Europe may have put Biden’s Executive Order (EO) on hold. While on the back burner now, the President at any time could unveil it. This EO will likely accelerate the development of a full regulatory framework for crypto. I’ve long argued that this is something else that could put pressure on coin/token prices.
So, What’s the Best Move With Cardano?
Admittedly, much of what I discussed above pertains more to crypto in-general. The long-term bull case for ADA-USD still hinges on factors specific to the coin and its associated blockchain.
Cardano’s Hydra scaling project could in time give its network an extremely fast transaction speed. This, along with other features, could make it a larger force in decentralized finance. In turn, enabling it to close more of the valuation (as measured by market capitalization) gap between it and Ethereum.
For reference, this crypto’s market cap today is around $32 billion, while ETH has a market cap well over 10x that amount ($354 billion).
In the near-term, though, overarching factors will drive its performance. With the high chance it pulls back again, you may want to take your time building a position in Cardano.
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.
