In terms of its blockchain, Cardano (ADA-USD) is firing on all cylinders. There has been a big increase in the amount of decentralized application (dApp) activity on the platform. The number of wallets holding its native coin has seen a big increase, as well. But while all this news bodes well in the long-term for this altcoin, don’t count on it doing much to give it support in the near-term. Instead, expect its coin price to move in tandem with the overall cryptocurrency market. That is, expect to move even lower from here.
After experiencing a dead cat bounce during March, cryptos are under pressure again. We’re seeing the same thing play out with other risk-on assets, like tech stocks. The prospect of tighter monetary policy from the U.S. Federal Reserve (Fed) as it tries to tame inflation is causing speculators to bail out of more speculative plays again. More volatile than established coins, such as Bitcoin (BTC-USD) and Ethereum (ETH-USD), this altcoin has seen a more outsized drop than its larger peers. Over the past five trading days, BTC is down around 6.6%. ETH is down around 5.8%. During this same timeframe, ADA is down around 9%.
After a double-digit drop for cryptos, how much lower can they go over the next few months? One big name in the crypto space, BitMEX co-founder Arthur Hayes, believes Bitcoin and Ethereum could test lows of $30,000 and $2,500, respectively. In other words, this is another 25% drop for BTC and another 17.4% drop for ETH. Again, trading more wildly than the established coins, this could mean Cardano sees an even larger plunge in price. A 30% decline from current prices — around 95 cents per coin — may not be out of the question.
That would mean a move back to around 67 cents per coin. This is a price level not seen since its big run-up in early 2021. So, what is the takeaway here for investors who are bullish on Cardano? If you’re looking to approach it as a near-term trade, forget about it. External factors are not currently on its side. Also, take into account that more than two-thirds of ADA holders are underwater and have held it for less than a year. This large concentration of short-term traders could panic if there is more volatility. A drop in price from here could be even greater than 30%.
What if you’re looking at it as a long-term investment? You may want to take your time, as well. As the inflation issue remains bad, the Fed is going to get more aggressive with its plans to hike interest rates and wind down its balance sheet. It is highly likely that risk-on assets like this one to fall to lower prices and languish there until monetary policy changes, or until other factors start to help bring inflation down. This will enable you to accumulate a position in Cardano at a far lower price.
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.
