Cardano (ADA) has been experiencing a price movement that raises concerns among investors. The cryptocurrency is showing signs of entering a breakdown stage of a classic technical pattern called a bump and run reversal (BARR). This pattern occurs when excessive speculation drives the price of a cryptocurrency higher rapidly, eventually leading to a “bull trap” situation. The BARR pattern consists of three stages: lead-in, bump, and run.
During the lead-in stage, the price of Cardano trends upward steadily without any excess speculation. However, in the following bump stage, there is a sharp advance in price followed by a complete wipeout of the spike. Finally, in the run stage, the price breaks below the support from the lead-in trendline. At this point, it appears that Cardano has entered the run phase of the BARR pattern.
If the BARR pattern is confirmed, the downside target for Cardano is estimated by measuring the pattern’s maximum height after subtracting the breakdown point at the support line. This calculation suggests that Cardano’s price could reach around $0.22 in August or early September, representing a 20% decrease from its current levels. Conversely, if there is a rebound, Cardano’s price could potentially reach the 50-day exponential moving average (EMA) near $0.30, indicating a 5% increase from the current price. Moreover, flipping the wave into support might result in a further runup towards the 200-day EMA near $0.34, representing a 30% increase from the current price levels.
Despite the bearish outlook, there are some promising fundamentals that could offset the downward pressure on Cardano’s price. Whales and shark wallets, which hold between 100,000 and 1 million ADA, have accumulated $116.1 million worth of Cardano since May 2023. This accumulation by ADA whales and sharks brings their net holdings to the highest levels since September 2022. It appears that these investors have taken advantage of the price decline caused by regulatory fears in the United States and are now betting on future gains.
Additionally, Cardano’s key on-chain fundamentals have been showing positive growth. In the second quarter, the total value locked (TVL) increased by 9.7% quarter-on-quarter (QoQ), and average daily transactions for decentralized applications (DApps) rose by 49% QoQ. This growth in network activity is driven by stablecoins, which fueled a 34.9% QoQ increase in TVL and DApp transactions, reaching $13.5 million in Q2. The increasing network activity should contribute to the upward pressure on Cardano’s price, considering its role as a fee settlement and staking token in the Cardano ecosystem.
While Cardano faces the risk of a significant price decline in the coming months due to the formation of the BARR pattern, there is still potential for a rebound and upward movement. The downside target of $0.22 indicates a 20% decrease, while the potential rebound to $0.30 suggests a 5% increase. Moreover, the positive on-chain fundamentals, including the accumulation by ADA whales and sharks and the growth in Cardano’s network metrics, provide some hope for the cryptocurrency’s future. Ultimately, investors must carefully consider these factors and closely monitor the price movement of Cardano to make informed decisions.