Wednesday, September 28

Cardano Marks a Bearish Wedge as ADA Price Spikes Over 100% in Q3


The latest rally in the Cardano (ADA) market has triggered a classic bearish pattern that threatens to lower its prices by as much as 15%.

Nicknamed as Ascending wedge, the textbook pattern is formed when price consolidates between the up-sloping resistance and the support trend lines. Its occurrence generally triggers a bearish reversal, confirmed by a voluminous break below the lower trend line.

The profit target during such a negative move becomes as low as the maximum height of the wedge.

ADA / USD currently ticks all the boxes to form a descending wedge pattern, as shown in the chart below. The pair is now expecting a negative break below its wedge support trend line, which may trigger a correction towards the 50-4H exponential moving average (50-4H EMA; the velvet wave) around $ 2.45.

Cardano 4H price chart with potential rising wedge formation. Source: TradingView.com

Wedge’s said target is just over 15% below current ADA / USD rates (~ $ 2.90).

“Once the target zone has been reached, it will show if Cardano manages to bounce from there or just prepares to continue lower,” confirmed Vince Prince, an independent market analyst. in a separate report based on the same Rising Wedge pattern.

The Prince’s Wedge target for the Cardano token was close to $ 2.24.

Bulls point to mass adoption of the ADA

The downside outlook appeared after Cardano surged more than 100% in the quarter to date, hitting a record $ 2.97 on the Binance exchange on Monday.

Traders raised their bids for ADA / USD after Cardano creator Charles Hoskinson finalized the integration of a long-awaited smart contracts feature into his blockchain via the so-called “Alonzo” update on September 12.

The news raised hopes that Cardano would directly rival Ethereum, the largest smart contract platform for market capitalization and volumes, but dealing with network congestion and higher fee issues. As a result, demand for Cardano’s native assets, ADA, would grow in tandem.

Cryptocurrency Market Analyst Lark Davis indicated that if Cardano manages to reach the same market capitalization as Ethereum, the price of ADA will rise to $ 10 per token. But he recalled that there were more players in the smart contract ecosystem waiting to dethrone Ethereum.

“If it was just Ethereum vs Cardano, it would be a much clearer platform battle,” Davis tweeted.

“But we also have BSC, Polygon, Solana, Terra, Avalanche, Zilliqa, Elrond, Polka Dot and many others who are looking for market share. Many of them are much more advanced in terms of building ecosystems.”

The analyst added that ADA / USD could see a pullback after the launch of Cardano’s smart contracts, citing the popular “buy the rumor, sell the news” effect. He advised potential ADA buyers to wait for a correction.

At least one technical indicator also pointed towards an imminent correction in the Cardano market. Nicknamed as Relative Strength Index (RSI), the momentum indicator returned a reading above 70, signaling that the current valuation of ADA exceeds its demand.

The ADA / USD Daily Relative Strength Indicator reading is 82.91. Source: TradingView.com

Bitcoin correlation

Another catalyst that appeared to have played a key role in increasing ADA / USD rates is Bitcoin.

The reference cryptocurrency generally acts as a trendsetter for rival digital assets. When it moves up, most of the major altcoins follow suit; similarly, its decline causes sell-offs in the rest of the cryptocurrency market.

Data provided by Crypto Watch shows that the one-year correlation efficiency between Bitcoin and Cardano is 0.40. It means that there is a 40% probability that BTC / USD and ADA / USD will move in the same direction. Interestingly, Cardano’s correlation with Bitcoin is also one of the lowest among altcoins.

Correlation of Bitcoin with altcoins, including Cardano. Source: Crypto Watch

However, the Bitcoin-Cardano correlation over a 30-day period becomes 0.53. Meanwhile, the last 24 hours revise the correlation to 0.60, showing that ADA / USD prices are still influenced by interim BTC / USD price trends.

In detail, the price of Bitcoin has also recovered in the third quarter, more than 47% at press time. It recently hit a three-month high of $ 50,505 on the Coinbase exchange and, like Cardano, began to consolidate sideways near its local peak.

Related: Cardano Price Targets $ 3, But ADA Chart Fractal Suggests Possible 40% Correction

But Dmitry Machikhin, CEO of Pressman Capital Investment Fund, noted that Cardano is forming a league of its own, given its lower correlation with Bitcoin compared to other altcoins. As a result, ADA / USD exchange rates could continue to climb for the remainder of 2021, regardless of Bitcoin price trends.

He told Cointelegraph:

Despite posting a new ATH at $ 2.97, an annual close of $ 5 cannot be ruled out, regardless of the direction of Bitcoin or other prominent altcoins.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.