Powerful Breakout Signalled by Cardano Network Activity and ADA’s Oversold Price Action

Caradano’s native gas-paying token ADA got a major hit at the beginning of June when the SEC labeled it as a security in its lawsuit against Binance and Coinbase.

The lawsuit caused a 42.5% decline in ADA’s price from $0.37 to a two-year low of $0.21 within a few days after the SEC’s lawsuit.

Furthermore, the token experienced more downside pressure due to delisting from U.S.-based trading platforms such as Robinhood and eToro.

Nevertheless, under the hood, the network has been making progress with an increase in DeFi activity after a scalability upgrade in May.

The technical and on-chain analysis of the token also indicates potential for a positive recovery.

Cardano’s DeFi Ecosystem is Booming

Charles Hoskinson, Cardano’s founder, has previously attributed the delays and network updates to “betting on the wrong technology and being a bit ambitious with the roadmap” in an interview with Cointelegraph, noting that 85% of the original roadmap has been completed.

The launch of Cardano’s much-awaited scalability upgrade, Hydra, in the first week of May 2023, has led to a surge in network activity. Total fees paid on Cardano hit a one-year high following the upgrade, before dropping due to the SEC’s lawsuit. Nevertheless, activity has been on a consistent uptrend for the past few weeks.

Data from DeFiLlama shows that the total ADA deposited in Cardano’s DeFi applications has increased significantly, reaching twice its peak value during the 2021 bull market. Additionally, trading volumes on Cardano DEXs have also seen a major rise since the Hydra upgrade.

Hydra is a layer-2 scaling solution that is designed to increase the throughput and scalability of the Cardano blockchain by processing transactions on a sidechain.

A Jarvis Labs report found that ADA is one of the “decentralized L1s out there” based on the Nakamoto coefficient, which measures the minimum number of entities that collectively control 33.33% of all coins staked in the network. This higher degree of decentralization could prove beneficial for Cardano in terms of determining whether or not it is a security in the US.

Kodi from Jarvis Labs commented in the report, “Cardano’s not dead, but very much alive, kicking, and ready to throw down in the next Robinhood Crypto bull run.”

ADA price analysis

The data on perpetual swap contracts from Coinglass revealed that most traders held short positions on ADA, expecting a downward trend after the regulatory action. The large sell-offs and pessimistic sentiment may lead to a counter-trend price rally in the near to mid-term.

On-chain analytics firm Santiment noticed a “high amount of sales at lower prices” in the initial week of July as prices bounced off the $0.30 resistance level. Analysts from Santiment added that the levels of profit taking revealed oversold conditions, “increasing the chances of rebounds”.

Technically, the ADA/USD pair has formed higher lows after hitting around $0.21 in June, indicating that buyers are buying the token on dips. A confirmation of the positive trend will be confirmed if buyers can turn the horizontal resistance level at $0.30 into support.

The ADA/BTC pair demonstrates indications of potential bottom as its weekly Relative Strength Index indicator falls into the oversold zone and the pair tests the long-term support and resistance level of 0.00000956 BTC.

If buyers manage to succeed, the pair looks ready for a 60% price surge towards 0.00001548 BTC support.

ADA has been facing headwinds due to the SEC’s lawsuit, delistings from U.S. based trading apps like Robinhood and negative sentiments, but there are indications that the network is still making progress. If the technicals continue to improve with the help of on-chain growth, ADA may be on track for a positive recovery in the future.