Cardano Surges 19% to 18-Month Peak Amid Crypto Market Shifts; Overbought Conditions Flag Correction Risks
Summary:
Cardano's (ADA) price soared by over 19% on December 9, hitting a 18-month high at $0.64. The surge was attributed to the decrease in Bitcoin's market dominance, which prompted investors to seek alternative cryptocurrencies. Positive trends were also observed in Cardano's total value locked, reaching a record high of 765.22 million ADA, and liquidations of shorts worth around $12 million on December 9. Despite these gains, ADA is currently at its most overbought state since May 2021, signaling a potential price correction in the future.
Cardano (ADA), a prominent cryptocurrency, saw a significant spike of over 19% on December 9, reaching a high of $0.64, not seen in the last one and a half years. The digital token has surged an impressive 75% in December alone. The uptick in Cardano's price is not attributed to any major fundamental developments but is largely due to the broader cryptocurrency market rebounding in line with Bitcoin (BTC) this month.
Bitcoin's dominance in the crypto market has experienced a 3.5% slide from its peak on December 6. Such dip indicates that investors are transferring funds from Bitcoin to invest in alternative digital currencies, known as altcoins. Cardano has benefited greatly from this trend, with its market share increasing by a staggering 46% since December 6.
In the cryptocurrency circles, capital rotations between Bitcoin and altcoins are quite regular. Investors often sell Bitcoin after significant price increases and invest their profits into smaller, riskier crypto assets. This pattern was observed in early November as well when Bitcoin's market share declined.
The recent price increase of Cardano coincides with a significant rise in ADA deposits across its blockchain ecosystem. On December 9, the total value locked (TVL) in Cardano's decentralized applications (dapps) reached a record-breaking 765.22 million ADA. The lending and borrowing protocol on the Cardano blockchain, Lenfi, led this surge with a 90% increase in its ADA reserves.
Such increase in TVL effectively removes ADA tokens from active circulation, which can enhance the price if demand remains high. This seems to be the situation with the ongoing ADA rally.
Cardano's price boost on December 9 coincides with the liquidation of shorts worth around $12 million. When a short position is liquidated, it essentially involves buying back the asset at its current market price. If there is a sudden price increase leading to simultaneous liquidation of many short positions, it can result in a considerable amount of buying, hence boosting the price.
However, an examination of Cardano price chart technicals indicates that ADA/USD is at its most overbought state since May 2021, suggesting a potential broader pullback trend. On December 9, ADA's weekly relative strength index (RSI) was at 82.75, well beyond the overbought limit of 70. This typically precedes price corrections, indicating that Cardano might be facing a selloff phase soon.
The overbought warning becomes even more urgent when Cardano tests its 0.786 Fib line near $0.648 as resistance, heightening the selloff possibility and pushing Cardano's price down towards its multi-month support level near $0.243 by the close of Q1/2024. On the other hand, a clear breakout above the 0.786 Fib line could push ADA's price towards the 0.618 Fib line near $1.135 by Q1/2024, nearly doubling its current price.
This news piece does not offer investment advice or suggestions. Every investment and trading move entails risk, and hence, readers should perform their own research before taking any decision.
Published At
12/9/2023 6:09:48 PM
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