Is the Cardano ADA Rally Substantive?

Cardano experienced a remarkable 23.9% price surge on July 13, leaving investors wondering if there is potential for further gains. This rally followed a positive judicial ruling on XRP (XRP), prompting many to ask if Cardano (ADA) can break the $0.40 mark.

There are three reasons to be optimistic about Cardano’s bullish momentum, including the ability to integrate other blockchains, increased activity in decentralized applications (DApps) and decreased regulatory risk. However, the latest XRP event should be approached with caution.

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SEC actions specifically named ADA as a potential security

Cardano and its ADA token were recently mentioned by the United States Securities and Exchange Commission (SEC) as a potential security in court proceedings against Coinbase and Binance exchanges. However, it’s essential to note that while the staking offering may be considered a security, it doesn’t bring any direct danger to Cardano or its development companies.

Following the SEC’s statement in June, ADA faced a 36% correction, dropping to $0.24. Nevertheless, the crypto.com ruling on July 13 helped ease regulatory risks, resulting in a surge in the rally of ADA and other coins affected by the regulator’s comments.

The concept of sidechain implementation has aroused more enthusiasm

Subsequent to the video shared by John Woods, Chief Technology Officer of the Algorand Foundation, Charles Hoskinson, the founder of Cardano, proposed the integration of Algorand (ALGO) as a Cardano sidechain.

Although it may appear improbable for the Algorand community to accept such a suggestion, the proposal becomes more significant in light of the announcement of AlgoFi’s closure on July 11. This was due to the SEC’s claims of security-like characteristics against Algorand, which arose from its initial coin offering (ICO). This could provide a way for Algorand to evade regulatory inspection, as well as increase the adoption of Cardano’s ecosystem.

It is worth noting that smaller altcoins could be incentivized monetarily to become a Cardano sidechain, taking advantage of Cardano’s affluent treasury and web 3.0 crypto coins marketing potential.

Increased activity in Cardano DApps and NFT markets

Smart contract utilization is essential for the success of blockchains created for DApps, particularly as Ethereum faces high transaction fees. As a result, it is important to observe ADA’s activity in terms of deposits locked on smart contracts and the number of DApp users to determine the sustainability of the current bull run.

According to DefiLlama, Cardano’s total value locked (TVL) in ADA terms increased by 10% month-on-month, reaching 550 million ADA on July 14. In addition, decentralized exchange volumes rose by 6% over the past seven days.

CryptoSlam reported that Cardano’s nonfungible token sales grew by 56% to $3.1 million, surpassing leading platforms like Solana and Ethereum.

Data appears to be positive, but ADA could still face regulatory issues

The recent rally in ADA is certainly encouraging, but there are still some risks to consider before investing in the project.

It is important to note that the court ruling only addressed sales via exchanges and over-the-counter desks, and did not explicitly clear Cardano’s ICO. The ongoing XRP trial will decide the fate of Cardano’s regulatory status.

Moreover, ADA’s TVL of $200 million is lower than other layer-1 smart contract alternatives such as Tron ($5.9 billion), BNB Smart Chain ($3.4 billion) and Avalanche ($727 million). This implies that demand for ADA’s services is still limited.

To strengthen its position and possibly exceed the $0.40 mark, Cardano needs to continue developing and meeting its promises, including the planned updates for 2023. Key upcoming updates include the Hydra L2 solution that uses sidechains to offload transactions from the main chain and Basho, an L1 scalability and performance improvement proposal for improved block structure, parallelization and pipelining.

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